Category Archives: Theory of Constraints

Are you measuring the right metrics?

I happened to meet one of my friends who has been in the construction business for a while. He is really passionate about his work and surviving amid tough competition in the locality. I asked him about how the business is going. He said it’s going well. Out of curiosity, I asked him how do you measure his performance? He thought for some time and managed to answer me that it is his business growth. In a matter of last three years, he was able to grow his revenue double the time. It’s a great achievement indeed. But, I asked another question. “In that case, your cash in the bank would be doubled at least isn’t it?”. He was silent for some time and tell me with hesitation “Nope”. He indeed has a problem paying his vendors on time as well as having a huge cash crunch.

So does it make sense to measure the performance of a company with revenue? Some people might say it is operating profit or return on investment. All these measures will really help us to arrive at a conclusion. But, is it makes sense? The theory of constraints explains that the real measure of enterprise growth is money (cash in the bank). All other figures can be manipulated by a financial guy the way management expects (at least to some extent).

It is not his lack of knowledge, but sometimes the true measurement hurts because it is difficult to achieve. However, having the commitment to measure it right once can change the way a business performs.

The goal of any business is to make more money now as well as in the future.

Is ‘Lack of Awareness’ a myth?

Most of the corrective action reports, I had come across in my life, had the actions mentioned as providing training to operators and staff, displaying one-point lessons, or creating awareness about the issues. Without a doubt, the root causes were always a lack of awareness. If an employee commits a mistake it is because of his lack of awareness. If a manager not properly reviews the document it is because of his lack of awareness and the list that is going on.

It is the easiest way to conclude a corrective action with training. Because people are not willing to deep dive into the ocean of complexities existing within the organization and identify the core conflicts. They intuitively know that this is not the right root cause, but they comfortably end it with a lack of awareness and training.

The non-conformities identified in the system are to be seen as interrelated and independent activities instead of looking at in silos. They could be the changes in any other element in the system which you may not be aware of. The research was done in minimizing human error revealed that 99% of accidents begin with human errors, but the root causes of these accidents are weaknesses within the management system. So, lack of training is not the solution to many problems. Instead one must have the courage to go to the root without any bias or false assumptions to see clearly what prevents them to achieve it.

Doing the Right Things

A management’s role is to achieve its purpose. The purpose could be anything depends upon the type of the organization. Usually, the purpose of a manufacturing unit is to earn more profit now and then. For hospitals, it is providing health services and for institutions, it is offering education. To achieve the purpose, managers need to direct and control the operation both in short term and long term. But most of the people in the management or in leadership role finding it very difficult to manage both roles together. They spend an enormous amount of time managing the urgent activities that require their immediate attention. It is like attending to a crying baby. We can’t escape from it. If a manager not thinking and acting in terms of long-term achievement, they often fail in their career progress. It is like walking on a thin rope with a long stick balancing both long-term and short-term goals together.

Typically, a manager’s short-term goal is to cut back on costs or investments, maximizing efficiency, focus on short-term profit, etc. this is to ensure a smooth current performance. The long-term goal is making investments, allow protective capacity, focus on profit, etc. this is to ensure long-term prosperity (1). Managers must play a balanced role within a limited time. This has been a challenge for them.

This article provides you methods to identify the area where managers’ involvement is required in day-to-day operations (making money now) and how to involve themselves in the long-term goal (making money in the future). For simplicity, the methods are explained by keeping a manufacturing unit in mind. However, the same methods can be applicable to all types of organizations irrespective of their nature. Also, you can replace the word manager with management to get the complete picture.

A manager’s attention is a resource. This resource is often not recognized as important as physical resources. One of the major reasons for this could be our inability to understand the importance of focusing on one thing at a time and things that matter most to the system (constraints). Every manager intuitively wants to manage and take control of everything coming under his scope. They often feel a sense of accomplishment as they are involved in day-to-day activities. As it gives immediate results within a short time they do more and more.

“I would estimate that about 80% of top management is absorbed in firefighting.” – Dr. Eliyahu Goldratt

It is very clear that a manager’s attention is required on the core problems of the organization. But it is very difficult to find a manager to constantly devote his time to ‘thinking’ on solving the core problem. Long-term thinking requires a discipline of understanding the whole system as one entity, believe in the principle that the entire system is controlled by very few key elements, and desire to identify those key elements using logical thinking. It requires patience, consistent thinking of cause and effect relationships, and devoting uninterrupted time.

 “Effective management is putting first thing first. While leadership decides what “first things” are, it is management that puts them first, day-by-day, moment-by-moment. Management is discipline, carrying out.” – Stephen R Covey

Putting first thing first means saying no to the remaining things. Because people tendency is to try and improve everything. All the problems are not worth solving. So, the first step to obtain focus is to stop doing what is not important. Manager’s attention must be focused on what is really dictating the organization ability to achieve more goal and removing significant limitation (3).

Managers Attention Wastes

The above image exhibits the relationship between the assignments taken by the manager vs. the time wasted by doing it. When the no. of tasks is low, the mangers time is wasted by underutilization. As the no. if assignments are increased, the focus is distracted, and more time is getting wasted. The managers should be assigned with limited assignments one can handle effectively.

The second step is that managers avoid dealing with symptoms instead of core problems to the organization (3). The correct way to identify the core problem of the system is to find the causes of the symptoms and keep asking whys to go deeper and deeper until finding the very few causes that creating all other symptoms. To find out the causes one must commit to devoting his time constantly thinking logically and challenging the assumptions radically. This will help them to find out breakthrough innovations.

Conclusion

In a single word, the whole theory of constraints can be expressed as ‘Focus’. It helps the organization to focus where the maximum performance is limited by a resource or a policy. It is called constraints. Constraints are limiting the performance of the entire system. By elevating and subordinating the constraints one can increase the system performance to the maximum. So, the key to the manager’s role in identifying the constraints in the organization and focus on them to improve performance. For this, a mangers attention is required on key elements. 

References:

Understanding Bottlenecks and Constraints

When I read the ‘Theory of Constraints’ concepts, Initially I was not able to understand the term bottleneck and constraints clearly. I hope the same might have happened to you also. So, in this article, I am trying to provide you the definitions, in a simple way to understand them better. please let me know your feedback in the comments section below.

What is the bottleneck?

From the book ‘ The Goal’ by Eliyahu Goldratt, I understand that the author used the word ‘bottlenecks’ in many places (accurately, 182 places). The book was about a shop floor manufacturing unit which was trying to improve its performance within  3 months. The term got popular in manufacturing and management science by this book.

The neck of a bottle, always limiting the flow is called a bottleneck. As per physics, the flow of the bottle is directly proportional to the cross-sectional area of the outlet. The cross-sectional area of the outlet is directly proportional to the diameter. So, when we increase the diameter of the outlet, the area increases as well as the flow of the bottle.

In a manufacturing environment, there are many resources (for example machines) used for producing a product. All these machines are linked to produce the final product. These machines are generally with a capacity not equal to the demanded output. Supposing, the demand is 10 finished units per hour, and there are 3 machines doing 3 different processes, which are necessary to be routed through for the completion of the product.  Unless we get 10 units from each machine (process) per hour, we cannot meet my expected demand of 10 finished units per hour.

For example, if machine no.2 having the capacity to process only 6 units/ hour, then this machine is limiting the entire flow. That means irrespective of the other machines’ higher capacity, the plant can produce only 6 units/hour. So, the bottleneck here is machine 2.

The below definitions, from the theory of constraints, will be easier now for you to understand.

A bottleneck is any resource with a lower capacity than the current load.

If several bottlenecks are present in the same line of flow, the one with the least capacity is the constraint.

An hour lost on the bottleneck is an hour lost on the entire system; an hour gained on a non-bottleneck is a mirage.

What is the constraint?

All constraints are bottlenecks, but a bottleneck need not be a constraint

Dr. Goldratt coined the term constraint in his book ‘The Goal – it is not luck’.

The whole philosophy of the Theory of Constraints aims to provide the person or management to focus on important things that should be done first. It is applicable to all sectors, depts. and individual.

Since the term bottleneck has been more associated with manufacturing resources, It required to be modified to suit the resources where it is not visible to the eyes. The constraint is a higher version of the bottleneck, It specifies the elements in a system or subsystem which limits the output.

The view that a system consists of a series of dependent variables that must work together to achieve the goal and whose ability to do so is limited by some system constraint. – Eliyahu Goldratt

For example, in a manufacturing environment, a Bottleneck indicates a machine having a lower capacity. which limits the plant output.  But what about machines having a higher capacity but its outputs are limited by low market demand. The machine is not producing enough since the customer demand is less than the capacity. Here, the word constraint is more meaningful than the bottleneck.

‘The constraint in project environments is not bottlenecks but the critical path (or, more accurately, the critical chain). The constraint in the distribution has nothing to do with bottlenecks. It is either cash (wholesalers) or the number of clients that enter the shop (retail). The term bottleneck started to be misleading; it had to be replaced with the broader term constraint.’

To summarize the above, the term bottleneck indicates the resources which have less capacity to meet the demand or expected output The constraint indicates both less capacity (bottleneck) as well as the area (subsystem elements) which prevents the growth of the organization.

References:

  1. https://www.tocinstitute.org/constraint-defition.htm
  2. Theory of Constraints Handbook by James F. Cox and John G.Schelier