Optimized no longer a limiting factor in the process.

Optimized Production Technology known as OPT was a software program, but it didn’t gain huge attention because of its lack of understanding of how OPT schedules were produced. To educate the workers and managers about OPT, Eliyahu M. Goldratt published a book named “The Goal” in the year 1984.  Even though the book was mainly written to educate the people about the OPT and its facilities, later on, it became a best-selling novel and also the foundation for principles of Theory of Constraints popularly known as TOC.

The big idea of TOC is that every process has a constraint and focusing on the improvement efforts to eliminate the constraint is one of the most effective ways to increase profitability of organization. As the name indicates TOC is methodology which finds the most limiting factor or constraint in the process. This limiting factor or constraint is nothing but the factor that affects the process from achieving its goals or a factor which slows down the entire process. TOC tries to systematically improve the constraint so that it is no longer a limiting factor in the process. In the manufacturing industry the constraint is often called a bottleneck. This theory is mainly based on scientific approach for continuous improvement. It assumes that every complex system or a process, has a series of multiple inter-linked activities and one among such activities will act as a constraint upon the entire system or process. “The performance of the entire chain is limited by strength of the weakest link”

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Constraint is nothing but any flaw in the process that prevents the organization from achieving its desired goals. There are many ways and opinions on how to categorize constraints; the common approach on the nature of the constraints is as shown below.

·        Physical- Typically it is an equipment, but it can be something like shortage of material, space constraints and workforce availability.

·        Policy- Procedure of working in an organization based on hierarchy, this may consume more time than required.

·        Paradigm- Fixed habits or beliefs of the people, for e.g. “Machine has to run continuously to reduce the manufacturing cost per piece”

·        Market- When the production is more than the expected sales which constraints the throughput time of the process. Here the constraint is the marketplace.

The ultimate goal of all the manufacturing companies is to make profits is long run by optimizing the process flow, So TOC provides some powerful tools which help us to achieve the desired goals by identifying and reducing constraints. These powerful tools include the following.

·        The five steps to focus on (methods to identify and eliminate constraints)

·        The thinking Process (tools to analyze and resolve problems)

·        Throughput accounting (method to measure performance and guide decisions of management)

As written by Eliyahu M.Goldratt in his book “The Goal”, the main idea of this theory is to identify the bottlenecks (i.e. Constraints) in the process and manage these constraints to create an efficient flow in the process. In the other words, it simply states, “the throughput of any system is determined by one constraint (bottleneck).” This means, in order to increase the throughput time, we need to focus on identifying and improving the constraint. It gives us five powerful focusing steps in order to identify and eliminate the constraints and is as explained in the below cycle.

1.1       Five Focusing Steps

         

 

 

These steps are further described as follows:

1.      Identify the current constraint; a single bottleneck in the process which limits the rate of the goal to be achieved.

2.      Exploit the constraint; using the available resources try to improve the throughput time of the process.

3.      Subordinate the constraint; review the activities in the entire process and make sure they support the needs of the constraint.

4.      Evaluate the constraint; please make sure to take further actions until the constraint in the process is resolved or completely broken.

5.      Repeat the process; these five focusing steps are for continuous improvement. If we eliminate one constraint try to address the next immediate constraint in the process. We need to aggressively resolve the current constraint and move to the next one.

1.2       The Thinking Process

TOC provides us with a powerful problem-solving methodology known as ‘Thinking Process”. They are mainly optimized for complex systems including manufacturing lines. They are scientific cause and effect tools which firstly identify the root causes of Undesirable effects(UDEs) and removes them without creating new effects.

Below are the examples of tools which are part of thinking process.

 

                                         

1.3       Throughput accounting

Throughput accounting is a different accounting method which tries to eliminate the harmful distortions from traditional accounting practices.

In traditional accounting, we consider inventory as an asset means we can convert it to cash by selling it, but in TOC it is considered as a liability. If we consider inventory it will block the cash where it can be used productively and effectively elsewhere. Traditional accounting strongly emphasizes on cutting expenses. In case of TOC cutting the expenses is given very less importance compared to increasing the throughput. Hence TOC emphasizes more throughput accounting. The core measures of Throughput accounting are as follows:

 

                        

TOC helps any organization to prioritize the improvement activities to overcome constraints and it offers a highly focused methodology to those organizations where there is a need for rapid improvement in the process flow. It is a powerful tool to improve the process flows. Successful implementation of TOC will have following benefits within the organization

·        Profits of the companies will be increased which is the primary goal of all organization.

·        Faster improvement in the process since all the focus will be on how to reduce the constraint to improve the process flow.

·        Increased capacity by reducing the constraints which help to manufacture more products in given time.

·        Lead time is decreased by reducing the constraint which helps in smooth process/product flow.

·        Inventory will be reduced.

2         Comparisons

2.1       Difference between Six Sigma & Theory of Constraints (TOC) 4

The basic difference between Six Sigma and TOC is that, the Six Sigma believes in achieving a  defect-free production by finding out the root cause of the defect in the process, while the TOC believes in improvement of the process by eliminating the limiting factor also called as constraint which is deviating the process from being optimum.

Six Sigma is a data -driven process. Depending on the data collected in the ‘measure’ phase of the process, the root cause is identified and eliminated to reduce the variation in the process. On the other hand, TOC is a logic-driven process. It creates a logical process to deal with the current variation in the process and then using the tools tries to find out the most affecting limiting factor, elimination of which will improve the process.

Six Sigma deals with the technical problems associated with the process, while the TOC also take in consideration the other factors such as the way of thinking of the people and the practices they follow, who are involved in the process 4.

Six Sigma doesn’t consider the relation between two different processes. It improves processes independently. While the TOC considers the relation between the processes in the improvement procedure.

Six Sigma increases the profit by generating defect-free process and TOC increases the profit by improving the throughput time 5.

3         The TLS approach

The TLS approach stands for integration of TOC, Lean and Six Sigma and is an integrated approach for continuous improvement(CI) and it allows all the tools to work together to achieve the bottom line goals demanded by the management. TLS is a process that involves three improvement methods to as follows 5

·        TOC is applied for systematic alignment and focus on leverage points to achieve the maximum throughput.

·        Lean is applied to reduce the waste at the leverage point.

·        Six Sigma helps to reduce the variation at the leverage point and obtain consistent results.

3.1       The TLS Process

TLS involves a process for continuous improvement; to achieve the best result for the organization. The outcome of each process is used in the next step for improvement 5. The process employed is as shown below.

shown below.

1.      Create the structure for CI & Align goals

The process starts with defining a structure for CI and building a process to improve. It mainly involves establishing governance and reporting structure for CI and then aligns these with organizational goals.

 

2.      Using TOC to identify the Leverage Point & Stabilize the Process

This is a two-step process where we identify the leverage point for process improvement and then stabilize the process using TOC.

 

3.      Implement Lean to Drive out Waste at the Constraint

Once the leverage point in the process has been identified, we use lean tools to make sure there is no wastage and maximize the throughput of the process.

 

4.      Implement Six Sigma to Drive out the Process Variation at and around the Constraint

Upon successful implementation of the lean, to reduce the wastage, we apply six sigma principles to reduce variation.

 

5.      Subordinate and Elevate the Constraint

While the process is being improved, please ensure that the synchronization issues are worked out. If the throughput is still not improved, consider adding additional improvement process to the constraint.

 

6.      Identify the new Constraint

Once the improvement is made in the process, observe for new leverage point and repeat the TLS process all over again.

 

3.2       Implementation using a case study

By using TLS implementation has demonstrated more superior results over using any other method alone. The management of Sanmina conducted an experiment on 21 plants over 2 and half years and almost 100 projects were completed during the experimental period. Out of 21 plants 11 opted for using six sigma, 4 used lean and 6 used TLS principles. The results obtained were quite amazing where the plants which implemented TLS achieved 4 almost 4 times in return compared to that of lean or six sigma. The TLS method contributed for 89% of total savings to the company, with six sigma in a distant second with 7% and lean with a contribution of 4%. One of the plant managers commented, “I have been the beneficiary of more than a tenfold return on the investment”. All those people who were involved in TLS implementation felt pride for the successful achievement of the task.    

  

3.3       TLS Benefits

·        Significant improvements in the process can be found in terms of net profit and ROI

·        Improves the overall performance of the company

·        They have integrated three tools to improve their process

·        There exists continuous improvement in the process

·        Progress towards zero capital investment

 

“The table below shows the key comparison between three methodologies and their implementation for continuous improvement in the process”.

 

Program

Six Sigma

Lean

Theory of constraints

Theory

Reduces Variation

Remove waste

Manage constraints

Application
Guidelines

1.       Define
2.       Measure
3.       Analyze
4.       Improve
5.       Control

1.       Identify value
2.       Identify value stream
3.       Flow
4.       Pull
5.       Perfection

1.       Identify constraint
2.       Exploit constraint
3.       Subordinate process
4.       Elevate constraint
5.       Repeat process

Focus

Problem-focused

Flow-focused

System constraints

Assumptions

A problem exists. Figures and numbers are valued. System output increases if variation in the process is reduced.

Removal of waste improves the system performance. Small improvements are better than system analysis.

Emphasis on speed and volume. Uses existing systems. Process interdependence.

Primary effect

Uniform process output

Reduce flow time

Fast throughput

Secondary effects

Less waste
Fast throughput
Less inventory
Improved quality
Fluctuation- performance measures for managers

Less variation
Uniform output
Less inventory
Improved quality
Flow- performance measure
for managers
 

Less inventory/waste
Throughput cost/accounting
Throughput- performance measurement system
Improved quality

Criticism

System interaction not considered.
Process Improved independently.

Statistical or System analysis not valued

Minimal worker input.
 Data analysis not valued