In my last post we completed our discussion on the seven different types of constraints that exist within any company, namely Resource/Capacity Constraints, Material Constraints and Supplier Vendor Constraints. Unfortunately, in my last post I incorrectly stated that we would begin a new blog post series on a different side of the Theory of Constraints, the Logical Thinking Processes. Since we have already discussed this subject in late 2015, I have changed our new blog post series to, Creating the environment for change. I apologize for this error.
The Starting Point for Change
Since I began writing this blog we have covered many different subjects that have to do with changing the way we do business. I have laid out what I refer to as the Ultimate Improvement Cycle (UIC) and have attempted to convince you of its value for your company. If I have convinced you, then you are probably wondering about the best way to get started. You might be incorrectly thinking that you should simply start with Step 1a of the UIC, but if you are, the answer is no. I say no, because if you did that, you would almost immediately begin hitting barriers and obstacles that would significantly limit your success or maybe even cause you to question the validity of this improvement methodology. So if starting at Step 1a is not correct, then what is?
Let us first consider the question of what you are attempting to do. Early on in my writings on this blog, I stated that the basic goal of all for-profit organizations is to make money now and in the future. If you are already making money, perhaps your goal might be better stated as to make more money now and in the future. If this is your goal, the question I would ask myself is: “What is preventing me from making more money now and in the future?” My experience tells me that there are a host of things that prevent companies from making more money.
In its most basic form, making money involves generating revenue that is greater than what it costs to generate it. So, if operating expenses are too high and you are not generating enough revenue, you will not make more money. So the question we must answer is: “Just how do you generate more revenue?” Assume for a moment that you have more orders than you have capacity to fill them. Because you are unable to satisfy market demand, it follows that your throughput (T) is too low. If your throughput is too low, then your cycle times must be too long. So then the key to generating more revenue must be reducing cycle times.
Little’s Law states that cycle time equals Work-in-Process (WIP) inventory divided by Throughput (T) or CT = WIP ÷ T. Based on this equation, it should be clear that reducing cycle time implies reducing WIP as long as T remains constant. So, if you have large amounts of WIP, then clearly you have an opportunity to reduce cycle time. But what if you don’t have large amounts of WIP in your plant? How else might you reduce cycle times?
Reducing Cycle Times
You know that cycle time is equal to the sum of all processing times for each process step. You also know that cycle time is the sum of all value-added time plus all non-value-added time in the total process. So if you want to decrease cycle time, you have three choices:
- Reduce value-added time
- Reduce non-value-added time
- Do some of both
One thing you know to be true is that non-value-added time far and away accounts for the largest percentage of total cycle time in all processes. This would imply that if you significantly reduce non-value-added time in your process, you could significantly reduce cycle time, which would in turn significantly improve your throughput and revenue. So what are these non-value-added times that I am referring to? Just think about which activities add value versus those that do not. Let us make a list:
- Transport time: Moving product from point A to point B.
- Setup time: Converting a process from one configuration to another.
- Queue time: Time spent waiting to be processed.
- Process batch time: Time waiting within a batch.
- Move batch time: Time waiting to move a batch to the next operation, which could also include time in storage.
- Wait-to-match time: Time waiting for another component to be ready for assembly.
- Drying time: Time waiting for things like adhesives to become ready to be assembled.
- Inspection time: Time waiting for products to be inspected.
There might be others you could add to the list, but for now assume this is your list. Which of these items add value? Clearly, none of them do, so they would all be classified as non-value-added. There obviously are things you could do to reduce each one of these. For example, process batch time is driven by the process batch size, so you could do two things that would reduce this time. You could optimize the batch size that you produce and, in conjunction with this, reduce the time required for setup. In doing these two things, you would probably also reduce the move batch time and maybe even the wait-to-match time. Clearly, these actions would reduce the overall cycle time. But even if you were successful in reducing cycle time, you would not realize a single piece of throughput unless you reduced the processing time and non-value-added time of the operation that is constraining the throughput, the system constraint. Any attempts to reduce processing times in operations that are not constraining throughput are quite simply wasted effort.
So, the key to making more money now and in the future is, in reality, tied to two single beliefs, focus and leverage. In Theory of Constraints (TOC) terminology these two beliefs of leverage and focus are fundamental to the idea of exploiting the constraint. If you want to increase your throughput, there is only one effective way to accomplish this. You must identify and leverage the operation that is limiting your throughput, your constraint operation. And how do you leverage your constraining operation? You do so by focusing your available resources on your constraint and reduce the non-value-added and value-added times within the current cycle time. It is really that simple.
In my next post continue our new discussion on creating the environment for change.As always, if you have any questions or comments about any of my posts, leave me a message and I will respond.
Until next time.
Don't miss out!
Stay on top of the latest business acumen by subscribing to the Manufacturing Breakthrough blog.