Deciding Goal Goldratt

Deciding on Theory of Constraints (TOC)
Powerful Solutions Start with the Right Questions
Copyright Dr EM Goldratt & Avraham Y. Goldratt Institute, 2000
Focusing improvement efforts for maximum impact

1
Avraham Y. Goldratt Institute (AGI)

AGI is the birthplace of TOC. It was founded as an educational institute in 1986 by Dr. Eli Goldratt, author of the bestsellers The Goal, Its Not Luck, and Critical Chain. Today, AGI is home to the worlds foremost TOC experts and practitioners, with 14 offices across 6 continents. AGI is the worlds largest consulting firm specializing in the application of TOC to achieve significant bottom-line results in organizations as diverse as industry, services, government, education, defence, and healthcare.
This presentation contains material that is the intellectual property of the Avraham Y. Goldratt Institute and of Dr EM Goldratt and may not be reproduced or distributed in any form, in whole or in part, without the prior written consent of the Avraham Y. Goldratt Institute.
Deciding on TOC
The holistic approach to business.
Presenters: Kathryn A. Leishman Dr Alex Klarman
Materials developed by Dr EM Goldratt and modified by D Houle, KA Leishman and Dr A Klarman.

4
Theory of Constraints
A toolset of logical Thinking Processes Generic solutions derived from applying
those thinking processes to a variety of functional constraints A focus on constraints
5 Focusing Steps of TOC

1. IDENTIFY the systems constraint(s). 2. Decide how to EXPLOIT the systems
constraint(s). 3. SUBORDINATE everything else to the above decision. 4. ELEVATE the systems constraint(s). 5. If in a previous step a constraint has been broken, go back to step 1, but do not allow INERTIA to cause a systems constraint.
Typical TOC Results Are:

Revenue / Throughput - UP 63% Revenue / Throughput / Profit UP 76% Due Date Performance UP 44% Inventory Levels DOWN 49% Lead Times DOWN 70% Usually within a few months to a year.
Data from The World of Theory of Constraints by V. Mabin and S. Balderstone, 2000. Mean of published results excluding outliers eg. 600% improvement by Lucent
Todays Presentation Includes

Examples of the use of the Thinking
Processes in answering these 3 questions
o o o
What to change? To what to change? How to cause the change?
A reliable process for starting to implement

TOC within the organisation
The only prudent way to manage a business is never to lose sight of the global picture.
Two different perspectives are: A dollar + a dollar + a dollar accumulates a fortune If you can find a leverage point you can move the earth. (Archimedes) TOC follows the second approach.
Copyright Dr EM Goldratt & Avraham Y. Goldratt Institute, 2000 9
Holistic approach -an example from the steel industry

Logistic - inventories are too high. Service - too many customer complaints. Finance - too long pay-back periods. People - bad internal human relationships.
10
560 A V-plant produces items through a process having many divergent points.
570 To maximize their performance of tons/hour departments tend to take actions which result in stealing.
540 To maximize their performance of tons/hour in a given measurement period, departments tend to produce the fast items at the expense of the slow ones..
545 To maximize their performance of tons/hour departments tend to produce for stock even when there is no market request for the short or medium horizon.
550 To maximize their performance of tons/hour departments tend to pull ahead orders that enable increasing a batch size.
525 Non-production results in zero tons/hour. 520 In most departments some items require less time per ton than others. 515 Departments try to maximize their performance as measured by tons/hour. 530 Every additional set-up reduces the measured tons/hour.
500 For a long time tons/hour has been the prime operational measurement in the steel industry.
510 Most people behave in line with the way they are measured. Copyright Dr EM Goldratt & Avraham Y. Goldratt Institute, 2000
11
560 A V-plant produces items through a process having many divergent points.
510 To maximize their performance of tons/hour departments tend to take actions which result in stealing.
540 To maximize their performance of tons/hour in a given measurement period, departments tend to produce the fast items at the expense of the slow ones..
540 To maximize their performance of tons/hour departments tend to produce for stock even when there is no market request for the short or medium horizon.
550 To maximize their performance of tons/hour departments tend to pull ahead orders that enable increasing a batch size.
525 Non-production results in zero tons/hour. 520 In most departments some items require less time per ton than others. 515 Departments try to maximize their performance as measured by tons/hour. 530 Every additional set-up reduces the measured tons/hour.
500 510 For a long time tons/hour has been the prime Most people behave in line with Y. way Institute, measured. operational measurement in the steel industry. Dr EM Goldratt & AvrahamtheGoldrattthey are2000 Copyright
12
The cloud of operations.

Because... A resource standing idle is a major waste.
B Constantly fight to reduce waste.
D Use efficiencies as prime measurement.
A Be a good manager.
C Constantly fight to increase flow.
D' Don't use efficiencies as a measurement.

13
Dependent resources
X
FLOW OF MATERIAL
14
The holistic approach

What to change - what is the core problem? To what to change - what is the solution? How to cause the change?
15
Session 1 Operations
What to change? Erroneous

assumption that a resource standing idle is a waste. To what to change? o Identify the constraint o Exploit the constraint o Subordinate to the constraint How to cause the change? Drum Buffer Rope and Buffer Management with consensus on procedures.
16
Results - Operations
Allied Dunbar (insurance, UK) investigated
the sales and telemarketing processes
o
Sales increased 67% Late shipments due to out of stock 245 to 11 Sales up 20% On time shipments to 100% Market to order lead time down 50%
Oregon Freeze Dry, USA.

o o o o
Session 2 Finance and Measurements

What to change? Erroneous
assumptions that the local impact equals the global impact on the organisation. To what to change? T, I, OE and 5 Focusing Steps. How to cause the change? Reassessment of investments, products and services. Resolution of conflicting measurements.
18
Results Finance & Measurements

Delta, USA, collections (many different fare
prices, charge back to travel agents for reductions over allowable, long queue for processing one right off for US$98 million)
o o
management tool for assessing contribution / constraint minute / error type $ up, time to process down
3. Engineering, product development and project management.

What to change? Erroneous assumption that in order to
finish a project on time we have to strive to finish every task on time. To what to change? Stagger projects. Concentrate safety in buffers and use buffer management to set priorities. How to cause the change? Consensus on Critical Chain and the mechanism to create buffer management.
20
Results - Engineering, product development

and project management.
Antarctic Support Associates, USA / Antarctica
o
RV Laurence M Gould survey boat in October the project was running 4 months late, would miss season brought in on schedule 11th December. F-16 airframe & structure upgrade from 8 to 5 months per unit Number of F-16 upgraded up 50%, improved readiness and saved $5 million.
Israeli Aircraft, Israel

o o
21
Session 4 Distribution
What to change? Erroneous assumption that
the closer to the client inventory is held, the better the service level. To what to change? Pull versus push. How to cause the change? Replenishment and Buffer Management. Measurements of Throughput $ day and Inventory $ day.
22
Results Distribution
Orman Grubb, furniture manufacturer, USA
o o o
Improved to 25 inventory turns more timely receivables average 29 days top 50 dealers had 46% increase in sales and dont want to change to other suppliers
23
Session 5 - Marketing
What to change? Erroneous assumption of
the perception of value of a product or service being based on the efforts of the supplier to design, produce, distribute, market etc. To what to change? Perception of value determined by the benefits expected from acquiring the product or service. How to cause the change? Building UnRefusable offers.
If all the improvements that were initiated by the previous sessions are not converted into a decisive edge, the majority of the potential benefits will not be realized. Rarely can a company devise effective marketing without the involvement and contribution of managers from all functions. The challenge is to put the systematic framework that enables everyone to contribute.
Results - Marketing
Media Automotive, South Africa
o
Un-Refusable Offer to Italian manufacturer of auto brake hoses to place brake hoses in a bonded warehouse, paid for as withdrawn, exclusive deal. Whats in it for Italians? Sales increased from SAR 24,000 to SAR 2 million in one year.
25
Session 6: Buy-In and Sales

What to change? Erroneous assumption that the first step in
the sales process is to introduce or present your product or service. To what to change? Overcoming each layer of resistance to change or buy-in in turn. How to cause the change? Preparation of the buy-in process and preparation of the sales team to follow the process.
26
Results Buy-In and Sales

Orman Grubb, furniture, USA
o o o
Dealer sales up 100% Opened 37 new dealerships Their distribution solution was a significant change which has to be sold differently.
27
Session 7 Managing People

What to change? Erroneous assumption that the way to manage
people is through authority and power. To what to change? Empowerment, consensus, conflict resolution and team work. How to cause the change? Use and give powerful day to day tools.
28
Results Managing People

Alliance Group, meat processing, NZ
o o
over 6 plants, no stop work situations compared to several the previous year management, line foreman and operators all said atmosphere improved, suggestions increased and more implemented. negotiated 50% pay rise and boss saw it as a good deal.
An individual
o
Session 8 Strategy and tactics

What to change? Erroneous assumption that a good strategy is to
maximise net profit by reducing OE. To what to change? Create a decisive dominant edge. How to cause the change? Immunising the future of the company, coherent strategy and tactics supporting the direction chosen.
30
Results Strategy and Tactics

Valmont Industries, Light Pole division,
USA
o o o
Sales up 40% per year OE up 10% per year Each year for the last 12 years
31
Where should we start? In the section which is the most

receptive? In the section which is the most representative? In the section which is the constraint?
32
What happens to a section which is managed according to a holistic approach while the rest of the organization is managed conventionally?
33
Who will win?

Requirements for X to succeed

How does X identify Y? How does X cause Y to move before
pressure builds? How does X refrain from fighting with the system?
35
Where is the proper place to start?

Move the company on a holistic approach. Start with a confined TOC application.
Improve the performance of the company.
Dont start another short-lived program.
Dont start with a confined TOC application.
36
Move the company on a holistic approach.
Improve the performance of the company.
Start by devising the companys strategy.

Dont start another short-lived program.
37
Alternatively use Link-Chain approach

X understands the cause and effect relationship
within its link and between links in the chain X identifies Y X induces Y to understand the cause and effect relationships within its link X implements improvements within its link making sure that Y is constantly updated As soon as Z joins, X & Y & Z go up to top.
Holistic approach
start with: Devising a winning strategy Backed up by prudent tactics Laid out in a detailed action plan
All in Consensus
True consensus
It is not enough that each top manager
agrees on the outcome
It is not enough that each top manager feels

that his/her concerns have been adequately addressed.
40
True consensus, commitment and responsibility

To ensure that the resulting action plan will be aggressively implemented each top manager should rightfully feel that his/her contribution was vital;
that the outcome is his/her baby,

both on an overall level and within his/her area of responsibility.
Obstacles
The strategic direction concentrates only on
one side of the existing conflict.
42
Obstacle: The strategic direction concentrates

only on one side of the existing conflict.
For some people in the management group (the impatient
visionaries) addressing a particular core problem is such a burning issue, that they simply say lets move, lets DO the improvement.
Consciously or subconsciously these people look at only

one side of the conflict and ignore the other side, because somehow they have learned that looking at both sides will slow them down.
43
Obstacle: The strategic direction concentrates

only on one side of the existing conflict.
Lets not forget that there are others on the same management team that dont ignore the other side of the conflict. What are the chances now of getting a consensus on the strategic direction?
So, why wont we build into their experience that the best way to charge ahead is by looking at the other side of the conflict, because it contains the erroneous assumption.
44
Obstacles
The strategic direction is nothing but polishing
an existing compromise.
45
Obstacle: The strategic direction is nothing

but polishing an existing compromise.
This is coming from other members of the management team (the prudent conservatives) who have learned the hard way, that if you go like a bull in a china shop, what you usually get is broken china. There are two sides to this conflict and you better find your way between them, otherwise youll just break the china. These are the people, who have learned to move slowly, even when moving on the compromise, because they recognize that this requires a trade off between problems. So, why wont we build into their experience that breaking the conflict cloud is by far safer than polishing the compromise.
Obstacles
The suggested tactics are based on prevailing
erroneous assumptions.
47
Obstacle: The suggested tactics are based on

prevailing erroneous assumptions.
What is happening here, is that as human beings we do learn from our experience and we do extrapolate from our experience, which is good. When do we get into trouble? When an assumption that we took for granted turns out to be invalid and we continue to extrapolate from our past experience, then we make mistakes.
48
Obstacle: The suggested tactics are based on

prevailing erroneous assumptions.
So, what we have to do is to take all of the experience of top management (operations, finance, engineering, distribution, marketing, etc.) and to reshape it, to show them another way to interpret their experience, one with the conflicts removed. And then to let them extrapolate, because now they will extrapolate from their reshaped experience and not from the old tactics.
49
Overcoming the obstacles

The first four days
Gain a deep understanding of all the major cause and

effect relationships governing the organization. Expose the prevailing erroneous assumptions. Become familiar with the common sense solutions stemming from an holistic approach.
All of top management together. Remember, you judge your peers according to your years of experience with them. Together, each sees how the other is changing.
50
Obstacles
The tendency to jump ahead. The dominant person. Lack of discipline in formal logic.
51
The consensus process

The second four days
52
Consensus on what to change?

Each individual contributes the biggest
undesirable effect that exists in his/her area of responsibility. Each individual presents the conflict diagram (cloud) that causes his/her undesirable effect. The group reaches the generic conflict.
53
Consensus on to what to change?

The group exposes the assumptions underlying the
generic conflict. The group identifies the direction of the solution. Each individual applies the direction of the solution to his/her conflict cloud to generate specific injections. The group adds the missing injections.
Consensus on how to cause the change?

Each individual contributes obstacles that might
block the implementation of the injections. Each individual turns his/hers obstacles into intermediate objectives. The group builds the road map. The group translates the road map into an implementation plan.
55
How to proceed from here?

Gather all top management to devise the strategy, tactic and implementation plan
- the 4 x 4.
56
THANK YOU
Lets discuss what can be done in your organization.
57

Deciding Goal Goldratt

Încărcat de

Informații document

Descriere originală:

Drepturi de autor

Formate disponibile

Partajați acest document

Partajați sau inserați document

Opțiuni de partajare

Vi se pare util acest document?

Este necorespunzător acest conținut?

Drepturi de autor:

Formate disponibile

Deciding Goal Goldratt

Încărcat de

Drepturi de autor:

Formate disponibile

Deciding on Theory of Constraints (TOC)

Powerful Solutions Start with the Right Questions

Copyright Dr EM Goldratt & Avraham Y. Goldratt Institute, 2000

Focusing improvement efforts for maximum impact

Avraham Y. Goldratt Institute (AGI)

Copyright Dr EM Goldratt & Avraham Y. Goldratt Institute, 2000

Copyright Dr EM Goldratt & Avraham Y. Goldratt Institute, 2000

Materials developed by Dr EM Goldratt and modified by D Houle, KA Leishman and Dr A Klarman.

Copyright Dr EM Goldratt & Avraham Y. Goldratt Institute, 2000

Copyright Dr EM Goldratt & Avraham Y. Goldratt Institute, 2000

5 Focusing Steps of TOC

Copyright Dr EM Goldratt & Avraham Y. Goldratt Institute, 2000

Typical TOC Results Are:

Copyright Dr EM Goldratt & Avraham Y. Goldratt Institute, 2000

Todays Presentation Includes

What to change? To what to change? How to cause the change?

A reliable process for starting to implement

Copyright Dr EM Goldratt & Avraham Y. Goldratt Institute, 2000

Holistic approach -an example from the steel industry

Copyright Dr EM Goldratt & Avraham Y. Goldratt Institute, 2000

The cloud of operations.

B Constantly fight to reduce waste.

D Use efficiencies as prime measurement.

D' Don't use efficiencies as a measurement.

Copyright Dr EM Goldratt & Avraham Y. Goldratt Institute, 2000

Copyright Dr EM Goldratt & Avraham Y. Goldratt Institute, 2000

The holistic approach

Copyright Dr EM Goldratt & Avraham Y. Goldratt Institute, 2000

What to change? Erroneous

Copyright Dr EM Goldratt & Avraham Y. Goldratt Institute, 2000

Oregon Freeze Dry, USA.

Session 2 Finance and Measurements

Copyright Dr EM Goldratt & Avraham Y. Goldratt Institute, 2000

Results Finance & Measurements

3. Engineering, product development and project management.

Copyright Dr EM Goldratt & Avraham Y. Goldratt Institute, 2000

Results - Engineering, product development

Israeli Aircraft, Israel

Copyright Dr EM Goldratt & Avraham Y. Goldratt Institute, 2000

Copyright Dr EM Goldratt & Avraham Y. Goldratt Institute, 2000

Copyright Dr EM Goldratt & Avraham Y. Goldratt Institute, 2000

Copyright Dr EM Goldratt & Avraham Y. Goldratt Institute, 2000

Session 6: Buy-In and Sales

Copyright Dr EM Goldratt & Avraham Y. Goldratt Institute, 2000

Results Buy-In and Sales

Copyright Dr EM Goldratt & Avraham Y. Goldratt Institute, 2000

Session 7 Managing People

Copyright Dr EM Goldratt & Avraham Y. Goldratt Institute, 2000

Results Managing People

Session 8 Strategy and tactics

Copyright Dr EM Goldratt & Avraham Y. Goldratt Institute, 2000

Results Strategy and Tactics

Copyright Dr EM Goldratt & Avraham Y. Goldratt Institute, 2000

Where should we start? In the section which is the most

Copyright Dr EM Goldratt & Avraham Y. Goldratt Institute, 2000

Copyright Dr EM Goldratt & Avraham Y. Goldratt Institute, 2000

Who will win?

Requirements for X to succeed

Copyright Dr EM Goldratt & Avraham Y. Goldratt Institute, 2000

Where is the proper place to start?

Improve the performance of the company.

Dont start another short-lived program.

Dont start with a confined TOC application.