A New Constraint Emerges
One of the key lessons the leadership of our RTA manufacturing company learned was that there was no limit on the number of things that their company could have chosen to improve and it seemed like there was no limit on the number of improvement tools they could have been using. Things like Total Quality Management, Statistical Process Control, MRP/ERP, empowerment, team concepts and so on. Yet by simply knowing where to focus and how to focus they had achieved their somewhat miraculous results in less than three months. The real surprise was that improvement came mainly as a result of changing some of their existing policies, procedures, and measurements and using the concept of focus and leverage.
As they tell us in this case study, there was no need to make significant changes to the plant layout or spend lots of time on training teams, or spend lots of money on expensive computer systems, or even reducing set-up times on their equipment. Unless a company knows where and how to focus on the very few constraints they truly have, all of the aforementioned tools available for improvement will not change their results.
This company enjoyed amazing success for roughly three years, even in the face of the one of the worst economic times in memory for their industry as a whole. A number of their competitors had either gone out of business or had to adsorb significant losses while waiting for the economy to turn in a positive direction. This company had managed their grooving line (their system’s constraint) until it was no longer their constraint. When this happened, they simply refocused their resources around the new constraint and gained even more output from their same resources.
As they point out in this case study, there were times when the real constraint appeared to be a lack of business, especially as this company moved into the early stages of the recession. When this happened, they brought in their consultant for an in-house workshop for their entire management team. This was after they had made it through their first cycle of improvement. It quickly became apparent that there was much more to TOC than just its application to the shop floor. This training gave them a very different perspective on the markets they could be in, as well as issues like pricing and bidding and new products to consider.
This workshop set this company up for its best-ever Autumn and its best-ever year to that point in time, in terms of revenue, units shipped, and profits. As a result, their product line was expanded to include other wood-based products. They used creative marketing strategies based upon TOC’s look at segmentation and pricing ideas. These actions kept the plant busy and profitable while many of their competitors were closing their doors.
As the economy recovered, this company was ideally in a position to capitalize on their superior performance. By the fall of that year, demand for their expanded markets was out-pacing the output of their constraint which had already undergone some set-up reduction as a natural part of Goldratt’s Five Step improvement process, “exploiting” this resources to its fullest. One of the techniques used was to treat changeovers much like Indy-car pit crews use during pit-stops. Their pit crew responded beautifully with people even coming in on their own time to assist with preventive maintenance on the constraints.
By October of that year, the constraint had been managed to the point where it was no longer the limiting factor and as expected another constraint appeared almost immediately, one which could be elevated relatively easily by simply adding some manpower. As a result of their actions, this company, using exactly the same equipment, was able to record a sixty percent increase in revenue than in their previous best-ever Autumn which everyone had believed was close to the plant’s maximum production. In fact, since they first started their improvement efforts with TOC, some three years ago, they had more than doubled their sales without adding additional equipment and only a small increase in headcount.
As a result of their improvement efforts, there was an intangible benefit that had emerged at this company. Before these improvement efforts began, the management team was constantly leaning over everyone’s shoulders to make sure they were busy all of the time. But after the improvement efforts were in place, this practice had stopped. They had realized the negative effect of using the performance metrics like equipment utilization and/or manpower efficiency in non-constraints. The shop floor worker’s morale had improved dramatically with one of the reasons being that there was this new level of trust.
One of the lessons the consultants tell us at the end of this bitter/sweet case study is the impact of ownership changes. They tell us that after their nineteen years of consulting, using the Theory of Constraints, the ONLY times they have known of a TOC implementation to be halted in mid-implementation, or to revert to previous ways following a complete implementation, is when:
- There is a change in ownership or a change in senior management
- The new owner or senior manager is determined to make his or her mark, to do things their way
- And their way is not the TOC way. They go with what they know best.
The bitter-sweet end with this company was such a change. The company had added several million in sales without much of a payroll increase at all. In fact, this company had generated several million in additional profit dollars over the three previous years even when there was a significant downturn in the industry as a whole. So what happened to end this fantastic story? The GM sold his share of the business and moved on. The owner/manager, who had no training in TOC, presided over a decline leading to a shut-down of this company in very short order. It’s very sad, but true. Left unchanged they probably could have grown at roughly thirty-five percent for many years and increased profitability every step of the way.
In my next post, we will begin a new blog post series on another facet of improvement in manufacturing. 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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