Is the Theory of Constraints causing you to miss opportunities?
The Theory of Constraints says that to improve a process, you must focus on the bottleneck; by identifying and correcting the most important limiting factor, the system’s performance is improved. If you improve some other part of the system that is not the bottleneck, the overall performance won’t be affected. Eliyahu Goldratt espoused this theory back in 1984 in his seminal work The Goal. Over time the Theory of Constraints, along with Lean and Six Sigma, became the leading methods for driving continuous improvement.
The problem is that since 1984, few companies have reaped significant sustainable benefits from these methods. Over 70% of these initiatives fail to provide lasting improvements and culture change in organizations. The ultimate measure is what value has the company created for their customer?
I’ve worked with many companies that found the constraint for delivering value was outside of the system of delivery. For instance, in two contract manufacturers heavily involved with sheet metal, the obvious constraint was the welding cell. The companies worked for years to improve that cell, spending money on robots, work cell redesign and other improvements to reduce cycle time, develop reliable delivery and cut costs. They were understandably frustrated when orders were still late and costs were still too high even after all their efforts.
When we examined the entire value chain – from the suppliers to the customers – we found that the constraints weren’t in the manufacturing process at all. In one case, it was in order preparation, and in the other, in the supply chain.
Innovative thinking, partnerships and operations discipline can accelerate delivery of high value to your customers.
Innovative thinking focuses on providing value for the customer and your business. Many of the improvement methodologies mentioned above focus on problem solving, which looks to the past rather than creating value though future-oriented innovative thinking. Having a strong vision of where you’re going and why brings sharp focus on creating value and improving the overall system, not just the constraint. Developing strong business strategy tied closely to operations strategy creates a push-pull performance that can exceed expectations.
What do I mean by push-pull? You might have noticed that many trains now have locomotives in both the front and the back. Pusher engines in the back reduce pressure on the car couplings, which in turn reduces wheel/track friction, significantly improving efficiency. By using the same number of engines, but placing half in front and half in back, the train’s overall performance is improved without expending additional fuel.
In companies, a strong business strategy is the front locomotive and a strong operations strategy brings up the rear. The business strategy sets the company’s vision and direction, while the operations strategy yields innovative supply chain and operations performance, driving profit, delivery and quality.
Partnerships, both internal and external, are an integral part of an effective operations strategy. In my forthcoming book, 1 + 1 = 100: Achieving Breakthrough Results Through Partnerships, I show how partnerships supercharge performance for companies, their employees, their suppliers, their customers and the community. By working in partnership, companies can boost quality, delivery and cost reduction, achieving improvements of 10% to 20% and beyond.
Operations discipline is also critical for success, helping ensure that what needs to get done gets done, in a way that fulfills the company’s vision and provides value to all stakeholders.
I worked with one company whose inability to properly launch a job into production caused several post-production issues such as large payment holdbacks, unplanned failure work, profit erosion and customer relationship deterioration. By developing strong project initiation processes, assigning accountability and ensuring proper execution, the company dramatically improved profit, cash flow and customer satisfaction.
From the Flight Deck
The Theory of Constraints is a useful methodology when you’re working to improve business systems, but it can be dangerous. By focusing solely on internal, finite systems, you can miss the opportunity to innovate, create value for your customers and achieve breakthrough results. With innovative thinking, partnerships and Operations Discipline, you can accelerate profit and growth to world-class levels.
© 2016 – Rick Pay – All Rights Reserved.