In my last post we completed our discussion of three simple questions by presenting Frank Patrick’s (  of Focused Performance), three steps to sustainable success. Those three steps were:
- Determine what’s stopping you from improving your bottom line.
- Create a strategic road map to your new, better future.
- Develop a universally bought-in plan to get you to that new level of performance.
Mr. Patrick also gives us three questions which must be answered if you are to succeed in changing your company’s future:
- What will you do with the new performance to maximize its bottom line effect?
- What new constraint will pop up once the current one is dealt with?
- Will it emerge in a way and in a time that will block your expected results?
In today’s post, we will begin presenting a real case study of a ready to assemble (RTA) furniture factory which was having difficulty producing products effectively, but changed its approach and became a very successful one. As you will see, this is a bitter/sweet Theory of Constraints case study. For those of you interested in reading the full case study, here is a link to it:
In my opinion, this case study is one of the best you’ll ever read about as it clearly demonstrates not only the improvement power of the Theory of Constraints, but also the speed in which TOC brings on these improvements.
This case study is about a young consultant, fresh out of TOC training, involved in his first implementation of the Theory of Constraints in a ready to assemble (RTA) furniture factory. This client had put together a core team comprised of a General Manager (one of two owners), a Production Manager and an IT/Systems Manager. This manufacturer was a relatively small business, but their enthusiasm and proclivity towards action was first rate and very noticeable.
Their initial improvements were very dramatic and were achieved within just forty-five days. In fact, they eliminated a six-week backlog of work, reduced lead times from several weeks to just six days and hit close to one hundred percent on-time delivery while simultaneously doubling productivity. Revenues grew by more than three hundred percent in just under three years with very little increase in headcount and smally amounts of capital expenditures. The resulting effect was that their profits soared to levels they had never experienced before.
It’s important for everyone to understand that the actions taken by this company had nothing to do with the specifics of the wood-working industry or the RTA furniture manufacturing industry. In fact, this consulting firm has applied the same principles, tools and practices to the production of products like heavy machinery, electronics, pharmaceuticals, clothing, corrugated boxes, etc. The point is, these same principles, tools and actions that you will read about in this blog post series will work in any industry. So let’s get started with this case study.
This small manufacturer was facing the same problems that many other small companies face in that demand for their growing line of RTA furniture was nearly beyond their ability to produce and ship it, even though they had two full shifts in operation. The order backlog for this plant was steadily increasing which the owners were happy about, but they also recognized the warning signs of impending near-future troubles.
As they became busier, their lead times stretched to more than three weeks, which meant that they had to hold higher inventories in their warehouse because they were losing their ability to replenish the orders quickly and ship on time. Add to this that whenever they tried to respond to an urgent customer demand, it caused lots of tension and anguish within their factory. They worked hard and usually always met these demands, but they paid the price in terms of disruptions. Other orders would become further behind schedule and these constant changes led to mistakes and quality problems. The employees on the shop floor began questioning whether the leadership knew what they were doing as priorities on them were constantly shuffling.
There were lengthy set-ups on some of the equipment, so wherever possible, they elected to manufacture components in large batches so as to reduce the number of changeovers. This was done to not only keep the costs down, but also to avoid wasting productive capacity during these equipment changeovers. As a result, the work-in-process (WIP) inventory ballooned higher and higher, which further extended their product’s lead times. Because of the decreasing lack of available floor space, the company even considered an expensive plant expansion. As the pressure grew, quality, which had always been this company’s hallmark, was becoming much more of an issue. And with all of these negative issues, there was a steady decline in employee morale.
The company’s GM, who had had some formal training in Operations Management in the past, recognized that changes had to be made and that the conventional approach would probably not dig them out of their deep hole. He investigated MRP, which is now a key component in today’s ERP systems, as well as a Just-In-Time/Kanban approach. The GM knew that implementing a computer system was one of the most popular steps for many companies who found themselves in the same position they were in, but he was anxious about doing this. He reasoned that this would tie up a lot of time and energy in making the system work, rather than making his business work better. He also knew that the dollar investment would have been very substantial.
Through a series of coincidences, the GM was introduced to the Theory of Constraints and read Eli Goldratt and Jeff Cox’s best-selling business novel, The Goal. The GM explained that reading this book was a real eye-opener for him. And even though his company was in no danger of being shut down, like the fictitious company in The Goal was, he recalled that it was almost as if Goldratt’s book had been written about his company. Lead times were extended, orders were behind schedule, the appearance and frequency of quality problems were growing, morale issues were obvious, etc. that had plagued the company in The Goal, were problems this GM was experiencing in real life.
In my next post, we will begin looking into what this company did to turn itself around. 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.
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