The package that I recommend most for people who really want to learn Theory of Constraints is below. What I like about it is that the tracks of the first 4 self learning videos match the tracks of the 4 Insights. So as your clicking around the Insights you can listen to Dr. Eliyahu Goldratt talking from the video CD.

There are 8 videos CDs covering 1. Operations, 2. Finance & Measures, 3. Distribution and Supply Chain, 4. Project Management & Engineering, 5. Marketing, 6. Sales and Buy-In, 7. Managing People, and 8. Strategy & Tactics. Eliyahu M. Goldratt is the presenter in all 8 videos.  Each CD is three hours.

And there are 4 Insights coving the same first four topics as above and they are like a PowerPoint presentation that you can click through an explore the topics in more detail.

Usually I recommend this package when it’s on sale for $741 because it’s such a good value. The 2 products sell for over $1400. But for the month of November 2009 you can get it exclusively (right here) for only $499.

This special price ends at the end of November 2009.  If you miss it, I can not extend it!

Das Defizit ist erkannt. – Wir müssen die Effizienz steigern!

Doch spätestens dann taucht die entscheidende Frage auf: Wo fangen wir an?

Einen Mangel festzustellen ist das Eine, diesen auch zu lokalisieren das Andere. Erst dann kann man sich an die Arbeit machen. Ob nun berufliche Prozesse oder private Finanzen.

Viele Wissenschaftler haben sich darüber den Kopf zerbrochen, z.B.

• Vilfredo Pareto mit der 80/20-Regel
• Wolfgang Mewes mit der EKS-Strategie
• Eliyahu Goldratt mit der TOC-Strategie
• Carl Spengel mit dem Minimum-Gesetz

und sicherlich noch einige andere mehr…

Das Minimumgesetz wurde 1828 von Carl Sprengel veröffentlicht. Justus von Liebig popularisierte es in erweiterter Form. Es besagt, dass das Pflanzenwachstum durch die im Verhältnis knappste Ressource (Nährstoffe, Wasser, Licht etc.) limitiert wird. Liegt ein solcher Mangel-Faktor vor, hat es für das Wachstum keinen Einfluss, wenn eine Ressource hinzugegeben wird, die bereits ausreichend vorhanden ist.

Vilfredo Pareto entdeckte im Jahr 1896, dass die Einkommensverteilung keiner Normalverteilung folgt. Das Pareto-Prinzip, auch 80-20-Regel, besagt, dass eine Minderheit der Ursachen, Aufwendungen oder Anstrengungen für die Mehrheit der Wirkungen, Erträge oder Ergebnisse verantwortlich ist.

Viele Verteilungen in der Natur folgen einer Pareto-Verteilung.

• 20 % Aufwand bringen 80 % Ergebnis, die restlichen 20 % des Ergebnisses brauchen aber 80 % des gesamten Aufwandes.
• Im Zeitmanagemnent erreicht man mit 20 % der eingesetzten Zeit 80 % der Ergebnisse.
• In einem durchschnittlichen Haushalt verursachen 20 % der Kostenpositionen 80 % der Kosten.
• In einem Unternehmen werden 80 % des Umsatzes mit 20 % der Kunden erzielt.

Gebräuchlich ist auch der Begriff Flaschenhals. Als das bezeichnet man die jenige Anlage, Funktion, Abteilung oder Ressource, die die höchste Auslastung in der gesamten Prozesskette hat, damit den Durchfluss begrenzt. Sie stellt somit eine Kapazitätsgrenze für ein Gesamtsystem dar.

Bay Bridge traffic jam - © gohsuket

Wolfgang Mewes hat aus der Analyse aussergewöhnlicher Karriere- und Unternehmenserfolge und Erfahrungen mit Teilnehmern betriebswirtschaftlicher Lehrgänge seine Erkenntnisse in der EKS-Strategie umgesetzt.

EKS heißt Engpasskonzentrierte Strategie = auf die am brennendsten empfundenen Bedarfslücken der Mitwelt gerichtete Strategie, aber auch Energo-Kybernetische Strategie = Strategie auf der Grundlage der energetischen Wechselwirkungen (Kettenreaktionen) und auch Evolutionskonforme Strategie = Strategie auf der Basis der natürlichen Evolutionsgesetze (Entwicklungsgesetze).

Die 4 Prinzipien der EKS:

1. Konzentration der Kräfte auf Stärkenpotenziale, Abbau von Verzettelung
2. Den wirkungsvollsten Punkt finden
3. Den Minimumfator (Engpass) finden
4. Nutzenorientierung statt Gewinnmaximierung

Um dieses Ziel zu erreichen, hat Mewes ein 7-Phasen-Programm entwickelt, “das eine Erfolgsspirale in Gang setzt”.

1. Ist-Situation feststellen und spezielle Stärken als Kernkompetenz herausarbeiten.
2. Das erfolgversprechendste Geschäfts- bzw. Aufgabenfeld erarbeiten.
3. Die erfolgversprechendste Zielgruppe herausfiltern.
4. Grösster Engpass der Zielgruppe (Kundengruppe) ermitteln und lösen.
5. Innovationsphase – weitere Lösungen für die Probleme der Kundengruppen anbieten.
6. Konzentration auf die Kernkompetenzen – (synergetische) Kooperationen werden ggf. sinnvoll oder notwendig.
7. Konstantes soziales Grundbedürfnis für die jeweilige Zielgruppe dauerhaft lösen.

In der von Eliyahu M. Goldratt entwickelten Engpasstheorie (engl. theory of constraints,kurz TOC) geht es darum, strategisch-organisatorische Probleme mit Mitteln der Kybernetik aufzudecken und anschliessend zu eliminieren. Ziel ist es, das System zu optimieren und nicht einzelne Elemente.

Es wurde ein Prozess zur kontinuierlichen Verbesserung von Systemen entwickelt, der auf 5 Schritten basiert:

1. Identifiziere den Engpass
   Hierbei wird ein System mit einer Kette verglichen, die nur so stark sein kann, wie das schwächste Glied.
2. Nutze den Engpass maximal aus
   Wenn das System nur so stark sein kann, wie das schwächste Glied, muss das schwächste Glied maximal ausgenutzt werden.
3. Ordne alles der Nutzung des Engpasses unter
   Verschiebung der Prioritäten, damit der Engpass wirklich maximal ausgenutzt wird. (Z.B. trotz betriebswirtschaftlicher Bedenken eine Maschine, die als Engpass identifiziert wurde, in Sonderschichten mit mehr Personal laufen lassen.)
4. Erweitere den Engpass
   Wenn es nicht reichen sollte, den Engpass maximal auszunutzen, muss durch zusätzliche Maßnahmen der Engpass auf ein höheres Kapazitätsniveau gehoben werden.
5. Bei Schritt 1 erneut beginnen

Wenn durch die Schritte 2-4 ein Engpass behoben wurde, wird das System durch den nächsten Engpass begrenzt. Daher muss diese Vorgehensweise ständig wiederholt werden.

Um die Effizienz zu steigern, gibt es verschiedene Ansätze. Allen der genannten Strategien gemeinsam ist, dass sie auf einen begrenzenden Faktor, den Engpass zielen, der, wenn behoben, enorme Verbesserungen ergibt.

 Onlangs heb ik het boek ‘Het Doel’ van Eli Goldratt gelezen. Dat klinkt als een suf managementboek met droge tekst, maar niets is minder waar. Eli Goldratt is een verstandige meneer die wijze dingen heeft gezegd over hoe je processen het beste in kunt richten en optimaliseren. Het grappige aan zijn boeken is dat hij ze meestal in romanvorm schrijft. Wat mij betreft een sexy manier om redelijk droge kost voor het voetlicht te brengen. Zo ook ‘Het Doel’. Omdat ik in mijn dagelijkse werk veel met het in kaart brengen en verbeteren van processen bezig ben, kocht ik het boek en las het in vier dagen uit.  

‘Het Doel’ gaat over een drukke directeur van een slecht draaiende fabriek  Vanuit het hoofdkantoor van het concert krijgt de hoofdpersoon, Alex Rogo de opdracht om zo snel mogelijk zijn locatie winstgevend te maken. Anders wordt de tent gesloten en komen hij en zijn werknemers op straat te staan. ’t Is natuurlijk een succes story, want Alex slaagt er met behulp van de wijze raad van een zekere Jonah in om ver boven verwachting te voldoen aan de opgelegde doelstelling. Zelfs zo ver boven verwachting, dat hij gevraagd wordt om een hele divisie te gaan leiden.

De methode die Alex gebruikt is de zogenaamde Theory of Constraints (TOC). Die wordt hem bijgebracht door Jonah, waarin een oplettende lezer met gemak Eli Goldratt herkent. De TOC is eigenlijk een zeer logische methode. Dat is waarschijnlijk ook de reden dat het boek zo’n succes is geworden. Het appelleert sterk aan het gezonde verstand. Dat is overigens ook de reden waarom het boek wordt verguisd. De TOC lijkt te simpel om te kunnen slagen. Managers verwachten nogal eens een complexe oplossing voor hun (complexe) problemen, zo betoogt Eli Goldratt, omdat dat een garantie lijkt voor betere kwaliteit.

De TOC in een notendop:

1)       Bepaal het doel – waarom doe je wat je doet? Neem geen genoegen met je eerste antwoord, denk er goed over na. Stel de ‘waarom?’-vraag meerdere keren.

2)       Breng je proces in kaart en kijk of die aansluit op het doel.

3)       Bepaal welk element in het proces de vertragende factor is. Dat is de ‘bottleneck’ of ‘constraint’. Dit is een hele belangrijke stap. De bottleneck is dat deel van het proces dat de output van je proces bepaalt.  Dat wat in het proces gelijk of minder is dan de vraag van de markt, zit je bottleneck.

4)       Versterk de bottleneck, maak hem wijder, verhoog zijn capaciteit. Zorg ervoor dat hij minder beperkend wordt.

5)       Richt het proces zó in, dat de andere stappen in het proces aansluiten op de capaciteit van de bottleneck.  Met andere woorden, zet de bottleneck vooraan in je benadering van het proces. Dit is een gekke stap voor veel managers. Dit impliceert namelijk dat productieonderdelen of mensen in het proces vóór de bottleneck nu en dan minder of niets hebben te doen, omdat ze anders het proces belasten met werk dat zich dan op zou stapelen bij de bottleneck. Toch is het heel logisch. Op die manier wordt de werkvoorraad (wachtend halffabricaat) omlaag gebracht en dalen de kosten die in voorraad- en opslagkosten zitten. Immers, de bottleneck bepaalt de output van het hele proces.

6)       Herhaal bovengenoemde stappen. In de loop van de tijd zal blijken dat er een nieuwe bottleneck optreedt in het proces. Daarom is het bewaken van het proces erg belangrijk.

 Stap 5 wordt in ‘Het Doel’ prachtig uitgebeeld met een metafoor. Op een dag gaat Alex Rogo met een groepje padvinders, waaronder zijn zoon, op weg. Het doel is om binnen een bepaalde tijd een behoorlijke afstand af te leggen en daar gezamenlijk aan te komen. De groep is nogal gevarieerd, de ene jongen loopt sneller dan de ander. Omdat ze achter elkaar moeten lopen, vanwege het smalle pad door de bergen, vallen er al snel gaten tussen de jongens.  Daardoor daalt de gemiddelde snelheid van de groep. Op deze manier gaat het niet lukken, zo constateert Alex al snel. Hij neemt maatregelen.

 1)       Hij bepaalt het doel – als groep, tegelijkertijd aankomen op de eindbestemming.

2)       Het proces in kaart – wie loopt met welke snelheid?

3)       Bepaal de bottleneck – een van de jongens is dik en heeft veel bagage. Hij vertraagt de rest.

4)       Versterk de bottleneck – de dikke jongen mag af en toe rusten en verdeelt zijn bagage over de andere jongens.

5)       De bottleneck bepaalt het proces – de slomerd mag vooraan lopen.

6)       In dit geval niet nodig. Ze gaan door de veranderingen zo snel, dat ze ruim op tijd aankomen.

 Met een beetje oefening krijg je die stappen wel in je hoofd. Inmiddels ben ik daarin geslaagd en gebruik ik hem als basis voor menig veranderingstraject. Meestal niet expliciet, maar de aanpak zit altijd verweven in de manier waarop ik met procesanalyses en verbeteringstrajecten omga. Bij gelegenheid zal ik een keer een succesblogje schrijven.

Otis Redding wrote the song “Respect” in 1965.  Aretha Franklin made it mainstream in 1967.

Respect is clearly important.  Most people, I think, want to be able to both give and get respect.  But giving and getting respect is not easy.  Indeed, some of our most painful moments may come when we recognize that we are not respected, or when we fail to respect other people.

One of the times when we can fail to either earn or show respect is when we are responding to an idea.  We respond to ideas all the time.

For example, when you submit a resume to a company in hopes of landing a job, you’re really presenting them with an idea (“You should hire me!”)  How they respond to that idea is almost certainly going to change how you view that company.  If they treat you with real respect, even if they don’t offer you a job, you’ll probably still respect them.  But if they treat you like dirt, well, then you’ll probably have a very negative view of that company going forward.

Of course, if you’re part of an organization, you will both offer ideas and be asked to respond to ideas.  I think all of us have been in situations where someone has come to us with an idea and we hesitate to give them a response.  Why do we hesitate?  As it turns out, there’s a good reason for it!

And finally, what if you are in the position of wanting to offer an idea to someone else?  Maybe someone you really care about, someone who you desperately want to help.  In these situations, offering an idea can carry all kinds of risk.  One of the risks is emotional.  It can hurt when we offer what we believe is an excellent idea only to have it ignored or rejected out of hand.

My good friend Mike Round sent me this poem,  Please check it out, paying special attention to the last two lines:

He Wishes For The Cloths Of Heaven
by William Butler Yeats

Had I the heavens' embroidered cloths,
Enwrought with golden and silver light,
The blue and the dim and the dark cloths
Of night and light and the half-light,
I would spread the cloths under your feet:
But I, being poor, have only my dreams;
I have spread my dreams under your feet;
Tread softly because you tread on my dreams.

I believe that how we respond to the ideas people bring to us has a huge effect on our personal success and the satisfaction we receive from our work.  If we respond to ideas in a good way we will greatly improve our interpersonal relationships and, ultimately, come to earn real respect from others.  On the other hand, if we respond poorly to ideas offered to us, is it surprising that we would not gain the respect of others?

I think this subject is also important in being able to understand how people will often react to ideas we bring to them.  While I don’t think we can completely eliminate the sting of having our ideas ignored by someone we are trying to help, understanding what’s going on under the surface can help us to properly process the situation and ultimately let go of our anger.

Dr. Goldratt shares his insightful analysis of this subject in his “Satellite Series” of presentations. He did this set of presentations years ago but I still find them invaluable. If you have the opportunity to do so, I think they are worth seeing.

So what is it that makes giving a proper response to an idea so difficult? It is that responding to an idea usually puts us into a conflict (a dilemma.)

Let’s say that you want to respond in the best possible way to ideas that people bring to you. What does it really mean to respond “in the best way?”

Dr. Goldratt identified two necessary conditions.

The first necessary condition for a good response is to ensure that if the idea is implemented, it will not lead to negative outcomes. Said differently, if the idea is implemented, it must bring about a net improvement in the performance of the system itself.

The second necessary condition is that a good response cannot hurt, or damage, the relationships between the person bringing the idea (the “inventor”) and the person to whom the idea is being presented (the “evaluator.”)

Is it clear that we have to achieve both of these conditions in order to be “giving a good response” to someone’s idea? Allowing bad ideas to be implemented cannot be said to be giving a good response. And yet, at the same time, offending someone who is simply trying to help improve the system is also not a good response.

If people always brought us good ideas, there would be no conflict, no dilemma, no problem to speak of. But isn’t it almost always the case that when someone brings us an idea, we have some reservations about it? Maybe we believe that implementing the idea would lead to some bad things, but we can’t immediately say what those bad things are. And even if we can identify some concerns regarding the idea, aren’t we very careful about how we share our concerns with the inventor? Why are we careful? Why do we try to choose exactly the right words? Because we care about the relationship with the inventor. We recognize that he or she might have spent weeks, months or even years thinking about the idea. So we treat it with great care.

Dr. Goldratt has said that “Ignoring a person’s idea is a rude form of disrespect.” I fully agree with this.

If you disagree, please consider the “Town Hall” meetings that were held earlier this summer. Where is all of this anger coming from? I belive it is coming, in part, from a sense on the part of ordinary citizens that their government has not been listening to their ideas (their suggestions, their complaints) for many, many years. The citizens can see what’s happening. And yet, when they present their ideas and concerns, those ideas and concerns are largely ignored. The government, in other words, is responding in a way that is “a rude form of disrespect.”

When you want to share an idea with someone, is it fair to say that you are enthusiastic about the idea? Probably, and usually, the more you have thought and sweated over the idea and its details, the more enthusiastic you become. If the idea seems to be a good one, you might even take some big risks in terms of presenting the idea.

I once had a powerful idea for a client of mine. The idea was so good that I risked getting fired in order to present the idea to the client’s Executive Committee. Do you know how big a risk that was? I jumped about four levels in the command hierarchy to do that. It was a huge risk. Fortunately, the idea was so good that I did not lose my job as a result of it. But I still paid a high price for doing it. And I will probably never take such a risk again for that client.

As the inventor, not only will you often be enthusiastic, but you will often tend to focus on the benefits of implementing the idea (“This is going to be so great ….”) and you will tend to be blind to any problems that would result by implementing the idea. When people ignore the negative ramifications of their ideas, we often call this “hand waving.” It means not giving a satisfactory answer to a perceived problem with the idea.

If inventors are usually blind to the problems that their ideas will create, then when someone brings you an idea, it’s quite likely that you will recognize those negatives. You will, in fact, have valid reasons for wanting to criticize the idea.

And yet, if the inventor is enthusiastic about the idea and expects that it will bring big benefits, then he or she is almost certainly expecting to be praised for the idea. When presenting the idea the inventor does not expect to be criticized; he or she expects profuse thanks.

So now the final elements of the confict are clear. When someone brings you an idea, it’s often the case that you find yourself having to criticize the idea and, at the very same time, praise it. Criticize the idea so that the negative aspects of it are identified and hopefully corrected. Praise it in order to maintain good relations with the inventor of the idea.

It might seem as if there is no solution to this dilemma. Isn’t praising something exactly the reverse of criticizing it?

As he always does, Dr. Goldatt has a solution to this dilemma. I’ll talk about that solution in my next blog post. Perhaps, in the mean time, you can think of your own solutions to this dilemma.

When I have a story writing workshop or some other brainstorming activity, one important task is of course to learn what is really important. Since I’m in the mental moving from scrum to Kanban, this has become more than important. It is crucial.

So, these are my phases of a story writing seminar:

The objective

During this part, we discuss the overall objective of the project. What we’re doing and why. I try not only to explain what the customer wants but I want the team to really make the objective theirs. I want them to form their own Commander’s intent so they not only know what the objective is but also what it’s not. We don’t have time for nice to haves. Most of the time…

Brain storming stories

This can be divided into a number of separate parts. If it’s a new group or the developers are not fully aware of the business, this should start with the discussion of the different user groups or personas.

Then we move over to the brainstorming of stories. Presented with the objectives and the user types, everyone gets to write their own stories. A tips here is not to push the user story format. When you make it mandatory, people will debate you, but if you instead say that you want to know not only what but why and for whom and that this is an excellent form for that, you get more in a story format. Don’t be afraid to see developers and operations as users. Some stuff you need for these groups too. And writing stories with yourself as user type makes developers learn how to use the format.

Grouping stories

After everyone has written their stories, I usually send two or three team members to the whiteboard to group the stories. I let them decide on groups.

After that we say the stories out loud. We select the stories we need, sometimes write some more and some of the stories are discarded after we explain why this is not necessary.

Highest priority

I then get everyone to mark on each story if it’s mandatory or not. Everyone get’s their saying.

We then sit down and I pick up the stories which at least one person said was mandatory. I then ask the following question about each and every story:

- If we don’t do this, the project will be worthless and unsuccessful?

This will make the number of mandatory stories much much smaller. When I was more junior as a product owner/project manager I thought the mere asking if the story was mandatory was enough. But the important question is if the story makes the difference between success and failure.

If a story is still considered as mandatory we look at the objective. And I ask the question:

- So, how will this help us reach the objective(s)?

A number of stories will lose their status as mandatory right there and then.

What is the first thing to do?

The next phase is to understand what we need to know where to start. If you have multiple sub groups, you should ask each group what they want to start with. Now the team often remember The Other Stuff, as development and testing environment, setting up build scripts and all that so be prepared for some extra story writing.

When every sub group has identified what they want to start with, they must say if they are dependent on another group to start with their first task.

If the groups depend on each other, use The Theory of Constraints to specify the priority. With that I mean that you should try to optimize the usage of the bottleneck resources.

Is this it?

This is an exercise which should be done regularly. As long as you have stories, you can focus on the next most prioritized items but you will need to go through all phases many times during a long project

I have said for years that TOC applies to software engineering, even once going so far as to write a somewhat tedious article (warning: pdf) on applying the Evaporating Cloud to software engineering. In fact, I once showed it to a really bright guy who is now the CEO of a respectable company.  He said, “It’s good, but you didn’t give the answers.”  Perhaps that shows the degree to which I missed the mark.  The paper wasn’t about giving answers to specific problems in software engineering; it was about sharing a general technique for problem solving.  Oh well.

At any rate, here’s an interesting post and video for folks interested in Agile and systems improvement methodologies like TOC and Lean.

I’ve previously posted a number of blog posts where I discuss the dangers of measuring individual productivity. If you believe in The Theory of Constraint, the questioning of this type of measuring becomes natural.

Mendelt Siebanga gives some well put examples of why he also thinks it’s contra productive with measuring individuals but he also discusses how you can increase productivity. A short, well put blog post.

This is my experience…

“To the optimist, the glass is half full. To the pessimist, the glass is half empty. To the project manager, the glass is twice as big as it needs to be.” - anon.

A general maxim I picked up in over the years is what can be measured can be managed. More importantly what can be measured can be optimized. This is the founding assumption of Lean, Six Sigma and any other form of Deming-based continuous improvement methodology. The general idea behind operational excellence is the ability of a firm to optimize discernable and observable activities in the operation to improve profitability. In a manufacturing environment this is relatively straightforward. Defects per thousand, capacity utilization and throughput are all obvious measures amongst others. In retail it can mean a well stocked shelf (re: a well oiled supply chain), cleanliness and quick turns per linear foot (good product sourcing). What can be measured in a services environment?

If you are like me and have spent any amount of time in a Small-Medium sized enterprise, one that delivers highly customized and often unique solutions then you can understand the difficult therein to define a consistent measure without falling into the apples-oranges debate. These organizations are what I have defined in earlier posts as Project Operations. The delivery of goods and services utilizing a PM methodology and PM tools such as Earned Value, Resource Utilization, CPI, CV, SV etc etc etc. All of which are great and very useful, but here is the rub. This leads to project quality only, and not product quality.  So here we go…

One O’Clock Gun Definition: Operational Excellence in a Services Environmentcan only exist in an organization which has: the appropriate tools to measure what is measurable (re: hours used) against what is expected or benchmarked; a process which is discrete enough and posesses repeatable elements to permit the application of a cost efficienct resources; and an acceptable standard, that is aligned with the operation stategy and in turn meets the firm’s brand promise to fulfill a specific market expectation.

In other words the glass should no bigger than it needs to be and contain what the drinker will actually enjoy.

Till the next sounding of the Gun…

What is Theory of Optimization? How it can help in Software Optimization i.e. identifying the constraints that prevent optimal application performance. Read at : http://www.ddj.com/development-tools/218101302?cid=RSSfeed_DDJ_All.

Today’s post is on how looking up new articles from reference lists can lead to amazing discoveries, and it’s quite interesting to note how one thing leads to the other…especially when you’re doing literature reviews…and usually it’s like this: You are reading some article on your main subject when you see some interesting references, which you look up, just to find even more interesting references, which you also look up, just to be led even further astray… and soon you find yourself reading something that isn’t even remotely related to – but at the same time much more fascinating than – what you were researching in the first place. No wonder I cannot get things done… That’s how I stumbled upon the Theory of Constraints, an amazing discovery that came from the aforementioned a-maze-ing discoveries (i.e. references that led me astray).

>>> Read the full post >>>

Usually I write about photography or photoshop, but today I wanted to share some books that have changed the way I view business at the most fundamental level.

Today, I wanted to share a book called The Goal.  Written like a novel, this easy reading book is about the Theory of Constraints (TOC) and shares a powerful method for conflict resolution called the cloud diagram. This is one of the all time best business books out there (as well as one of the best selling business titles ever). It is very easy to read and will forever change the way you look a problems (business or personal).

TOC – in a  nutshell – is a method to identify areas in a system where the work backs up – “the bottleneck” – and how to alleviate the problem.  This can work for marketing, sales, production, workflow, scheduling, etc… If you can identify the problem area, this book gives you the tools to fix them.  Bonus – Understanding why most other popular business paradigms (Just in time -JIT, Total Quality Management -TQM, and six sigma, etc…)  work can be explained by TOC.

When a manufacturer wishes to improve the efficiency of their operation they can turn to a wide range of proven tools and techniques.  There are tools to assist with the optimisation of production schedules, the minimisation of inventory, the reduction of waste and any number of other common causes of inefficient operations.  Many of these systems have been successfully adopted by service businesses.  However, when adopted, they are seen primarily as a means to optimise the physical interactions which deliver the service, rather than as a means to improve the service itself. 

One of the most successful of these theories is Eli Goldratt’s Theory of Constraints.  Goldratt shows that the performance of a whole system is dictated by the performance of the slowest individual component of that system.  It focuses its efforts, therefore, on identifying and alleviating that constrained resource – or the bottleneck in the production process – because the performance of the system is optimised whenever the performance of the constrained resource is optimised.  Every system must have at least one such constraint because, in the absence of such, a profit making organisation would make infinite profits.  Constraints are seen as positive as their existence represents an opportunity for improvement.  Consequently, a continual improvement in system constraints will result in a continual improvement in organisational results.

The Theory of Constraints has found broad support from service businesses – including banks.  However, as with all such theories its application has been limited to opportunities to increase the efficiency of the service delivery processes.  A bank might, for example, use it to reduce the time it takes to process a loan application.  However, even more value could be created if banks were to use it to improve their products too – in this case the loan itself.

In a simplified manufacturing scenario we would expect to find machines that turn ‘inputs’ into ‘outputs’ (the rate at which they do this is called ‘throughput’), some ‘working capital and some damaged goods or ‘scrap’.  It is easy to see how a theory originating in this environment might be applied to the service delivery process – the staff become the machines who, by using their training, systems and other ‘inputs’, deliver the service or ‘outputs’.  It is less easy to see how they might be applied to service design process.  To do this, we must look at things from a new angle.

Consider a simple manufacturing business with three machines turning inputs into outputs: one with very high throughput but low accuracy, one with low throughput and high accuracy and one that falls somewhere between those extremes.  The first machine creates finished products more quickly than the other but also creates the most scrap.  The second machine creates little scrap but also few outputs.  Another consequence of the slow throughput rate is a build-up of inventory and its associated costs.  The third machine produces a more optimal mix of finished products and scrap.  This is less different to the design of a loan product than might be expected. 

Instead of machines, banks have credit extensions which, in lieu of turning inputs into outputs, turn capital into interest bearing balances.  Instead of a throughput rate there is a limit utilisation rate, risk replaces accuracy and bad-debt write-offs replace scrap.

Now we can translate the earlier manufacturing example into banking terms.  The first credit portfolio has a very high utilisation rate but also very high risk, the second portfolio is of very low risk but has a very low utilisation rate and the third portfolio is, once again, a balance of the two extremes.  The first portfolio might lead to more balances in a period but it comes at the high cost of significant bad-debt write-offs.  The second portfolio might have almost no bad-debt write-offs but it also struggles to create interest bearing balances leading to a build-up of inventory in the form of unproductive capital.  The third portfolio creates a better mix of interest bearing balances and bad-debt.

This contrived scenario is clearly overly simplified.  However, real data from a major South African bank revealed a remarkably similar pattern.  The lowest risk accounts had very low utilisation rates and large inventories of unproductive capital.  On the other end of the scale, the utilisation rates were at their highest but so was the rate of bad debt write-offs.  The most profitable accounts were found somewhere between these two extremes where an acceptable levels of risk coexisted with an acceptable utilisation rate.

Clearly, manufacturing patterns are not just relevant to the service delivery process but inherent in the product itself.  It is therefore possible to use theories like the Theory of Constraints to optimise the design of a loan product so as to achieve a portfolio with the optimal mix of risk and reward. 

The Theory of Constraints has a specific set of steps to identify and remedy under-performing components in a system – called the ‘framing steps’.

The first of these framing steps is to articulate the goal which, in this case, is to maximise the profit generated by a given portfolio of loans.  The second step is to identify the constraint.  In our example, there was a high level of unused capital (inventory) in the lowest risk groups – as often occurs when credit is provided on risk criteria alone, independent of any demand indicators.  A build-up of inventory is a sure sign of a bottleneck and the Theory of Constraints would suggest that, in this case, that bottleneck was the market demand.

Having identified the constraint, the next steps are to exploit the constraint, to subordinate all the other processes to the constraint and to elevate the constraint.  In layman’s terms, this means the work currently being done by the constrained process is prioritised and non-essential tasks are removed or relocated to non-constrained resources.  Then, all other processes are adjusted and aligned to accommodate those decisions.  In terms of a portfolio of loans, this could involve adjusting pricing and reallocating capital to the riskier accounts where demand is higher.

Finally, investments must be focused on improving the capacity of the bottleneck – by offering incentives for low risk customers to borrow, etc.  Once the process has run its course and the constraint has been removed, it simply repeats itself with the next constraint.  Thus, a process of continuous improvement is borne.

So an agile team strives to work at a sutainable pace.

Great.

It’s even in the agile manifesto -well, on the second page:
“Agile processes promote sustainable development. The sponsors, developers, and users should be able to maintain a constant pace indefinitely.“

But what about the managers? and the executive layer?

According to a new book, Elsewhere USA (Dalton Conley), things have dramatically changed in the past few decades:

• In the 60s, professional success translated into increased wealth and more leisure time for people and their family
• Today, professional success doesn’t. Instead, people end up working more hours and feel higher  anxiety

Excerpt from the book description:

Boundaries between leisure and work, public space and private space, and home and office have blurred and become permeable. How many of us now work from home, our wireless economy allowing and encouraging us to work 24/7? How many of us talk to our children while scrolling through e-mails on our BlackBerrys? How many of us feel overextended, as we are challenged to play multiple roles–worker, boss, parent, spouse, friend, and client–all in the same instant?

Conley shows that the higher the position, the more people feel their work is intangible, pushing them to work longer and longer hours, everywhere, all the time. He doesn’t condemned the practice, but rather tell people to accept and live with it.

So here’s a question:

Given that

• employees do what the boss does -a simple mimic mechanism or a conscious action to avoid being in trouble
• over utilized people produce less than people that have some
• all systemic conflicts are the result of unexamined assumptions (root causes)
• overall throughput can be only be increased by increasing the throughput at the bottleneck process

Are executives really helping their company when working 24/7?

Every day we see news of companies cutting staff and claiming huge reductions in sales as the reason. But are some of these companies over-reacting? The article below was written by Eli-Goldratt, world famous for his business best-seller ‘The Goal’. His analysis suggests that many companies are indeed over-reacting to the sales downturn. Not only that – they are also missing out on huge opportunites.

Have a read and make your own mind up – don’t just accept what you see and hear in the media!

The Power of Cause and Effect

What does 2009 hold for an electronic sub‐systems manufacturer?

10 Jan 2009

Eliyahu M. Goldratt

Last week, we spent time with a group of top managers of a Japanese company, a large electronic sub‐systems manufacturer. It quickly became apparent to them that they have to answer the biggest business question they ever faced. Can it be that almost everyone is grossly misreading the current situation; the newspapers, the investors, and even the most practical and experienced people – the top managers of the large companies? Is it possible that they are all mistaken, even though the relevant facts are readily accessible and all the causalities are well known? One does not expect to analyze a situation that the prevailing consensus regards as a major crisis, actually as the biggest crisis of the last 50 years, only to realize that it is just a relatively small downturn and, provided that the proper actions are taken, can be the best opportunity for growth. After four days, they reached the conclusion that, as incredible as it is, and provided the proper actions are implemented, 2009 is likely to be the best year in their company’s long history, and they are going to do their best to convince their company to act accordingly. Here is the analysis that was exposed to them. Would you reach a different conclusion than the one they arrived at?

Let’s start by describing their situation. In November 2008, the media was filled with warnings that the huge financial crisis – the collapse of so many pillars of the financial world, which was triggered by the scandal of the subprime – was quickly developing into an economic crisis. In line with the media warnings, the company started to feel the impact at home. Their sales started to decline in November, and in December they registered the biggest meltdown in sales they had ever seen – incoming orders dropped by 50%. It’s no secret that, not only them but all their competitors, are now contemplating (some started) a massive cut in capacity, including stopping the employment of many thousands of people. The question that every company in their situation is asking (and around the world there are many companies in their situation) is: what forecast should guide their actions in the coming year?

After experiencing such a drastic fall in sales, and when the consensus is that the world economy has started a major downturn, it is clear to the company’s management that urgent steps must be taken to adapt to the new reality. To make things worse, their pre‐crisis forecast for 2009 predicted a continued increase in sales, and accordingly capacity was increased. As much as they wish to avoid it, they realize they too will have to cut capacity and let many workers go. But in order to make a responsible decision, they should figure out to what extent capacity reduction is needed: how low are their sales expected to be in the following year? Will sales continue falling, or stabilize around the new low figures? Or maybe, hopefully, begin to climb up soon? Figure 1 is a graphic representation of the uncertainty they are facing.

It is very difficult to operate under such huge uncertainty, but in order to reduce the uncertainty more relevant data is needed. Is there any additional data that can be used to provide a better forecast? Data that will reduce the uncertainly they are facing?

Of course there is. This company, like most companies, is a part of a supply chain. They sell their products (mainly) to consumer electronics manufacturers (Original Equipment Manufacturers ‐ OEMs) that in turn sell their products to retailers that sell to the end consumer. Overall, what the retailers sell has to be manufactured by the component producers. So, to get a good view into the future, one has to examine what happened recently to the sales of retail to the consumer. To get some hard data, we called our friends at Nikkei magazine and asked, “What happened to retail sales of electronic consumer goods in December?”

Their surprising answer was, “Yamada Electronics – 114% relative to last year.”

Probably, you are as surprised as they were. Why? Because we all read that consumers’ sales went down. Dramatically. The first examples that jump to everybody’s mind are cars and real estate.

Cars and real estate are unique in the sense that almost nobody buys them with cash; they are credit‐dependent purchases. So, it’s no wonder that when the financial system became paralyzed, when it became much more difficult to finance a new house or a new car, the sales of these credit‐dependent products took a nose dive. Unfortunately, we extrapolated from those very visible products to the market in general, which is not credit‐dependent; we erroneously took these two specific cases as representative examples.

Relying only on the information that we received from our friend at Nikkei magazine, weren’t we facing the danger of making the same mistake, the mistake of extrapolating from too few data point; one major chain in Japan? After all, their company is selling over 80% of its products outside Japan.

We were looking for data about the situation in the US, the country of origin of the financial crisis, and therefore the country one expects that the initial impact is the biggest. And, just to be on the safe side, we were looking for the global retail picture and not just consumer electronics sales. Not before long, the answer was provided by their head office, the encompassing reliable data we were looking for (in retrospect, a search of the internet provides a good enough answer).

In short, no evidence of “a huge economic crisis” is showing. If one insists on being pessimistic, and use just the most distressing sources, the decrease in the last few months (excluding cars), constitutes a drop of less than 10%. Needless to mention, this is a far cry from the 50% scare. The data from all sources provides a solid proof that the market consumption is not experiencing (yet?) any meltdown.

This is far from anything the company’s management team had expected. If no crisis occurred in retail, they are facing a big mystery: how come they and their competitors, actually all electronic sub‐systems manufacturers, are experiencing a huge drop in sales? What can explain the sharp drop in sales they are experiencing, while the demand, as reflected by retail sales, is relatively stable?

The answer is that retailers also read newspapers. The alarming headlines created the impression of an economic crisis, and retailers are especially sensitive to such developments. Typically, a significant part of the inventory they hold has a finite market life and the nightmare of a retailer is to get stuck with

yesterday’s merchandise. For this reason, the recession warnings brought retailers to almost instinctively take immediate precautions to reduce their inventories. To lower inventories, many retailers gave substantial price reductions in December1 to encourage sales, while cutting down on incoming inventories; ordering less from their suppliers.

This started a snowball effect. Due to the retailers’ decision to reduce inventories, the OEMs now experienced a substantial decrease in orders. For the OEMs, this significant sales reduction was interpreted as a clear indication that the warnings about an economic crisis were materializing. Like the retailers, they too reacted by lowering their inventory levels. Lowering inventory meant that they lowered their purchases from their suppliers even more than the level their sales had dropped. No wonder that the electronic sub‐systems manufacturers suffered a dramatic 50% decrease in sales even though consumer demand stayed about the same. The same amplifying effect took place when the sub‐systems manufacturers, in turn, dried up their orders to their material suppliers – which experienced an alarming sales drop. The media don’t have any lack of stories to now further fuel the impression of an economic crisis.

So, when will the internal orders of the supply chains be again aligned with the real market demand? This is not a big mystery: when the surplus inventories will be flushed out. Since retail typically holds 3‐4 months of inventory, probably as this article is written, retail is starting to increase its orders to the OEMs. It stands to reason that retailers are still cautious, and therefore will order in smaller quantities than they used to, albeit more frequently. The OEM’s, once they experience this increase in demand, will follow in their footsteps and increase their purchasing levels. Yet, they will not act immediately, but rather wait to make sure it is not a fluke. Since OEMs hold about 1.5‐2 months inventory, the component manufacturers should start to see a pickup of their sales already in February, and at around April the drop in orders crisis that they experienced will come to an end. But on what level will orders stabilize? In other words, since order levels will be again in‐line with consumer demand, what is the market demand expected to be?

Every day the news is filled with reports of more people being laid‐off by many sectors of business. This must have a negative impact on retail sales. How much? If a company’s business is rice, it should not expect that even a big economic change will have a big impact on the market demand for its product. The opposite is true for a company that deals with relatively expensive jewelry. But for most products, the Gross Domestic Product (GDP) is an excellent representation of the market demand (unless your industry has a specific characteristic that was impacted, like the real estate industry is strongly impacted by the credit crisis). So to get a reasonable forecast, a forecast that considers the negative effect of increasing unemployment and the difficulty for the company to get credit lines, but also the boost the economy must get from much lower oil and metal prices, we were looking for what the economists are now predicting for next year.

Economists also read newspapers, and being human they are also impacted, but their statistical tools force them to evaluate all data sources. So even though the title attached to most such graphs is rightfully alarming, the forecast of GDP is actually quite comforting for the top managers of the electronic sub‐systems manufacturer. Yes, every single country will be affected for the worse. In the developing countries the growth will continue but at a slower pace. In the developed countries the trend of economy is reversed from growth to shrinking. But everywhere the impact is just few percent; very modest relative to the scare of 50%.

Now we have a pretty good idea of how the company sales will be next year; the sales level is expected to stabilize around last year’s figure, give or take a few percentage points. To capitalize on the recovery in sales, the company has to take two types of actions. Actually, the first is a non‐action, do not cut the capacity. Cutting manpower is painful and hiring, many times, involves the long process of training. Companies that lay people off now will most likely be slow to respond to the sales picking up shortly thereafter.

The other action that is required is to help the material suppliers. As we already noted, those companies were hit the hardest, and they will be the last to feel the recovery. If the material supplier is a small company, it might not last through the transition period. The component manufacturer might not be able to fully capitalize on the increase in sales due to material shortages. Provided that these two types of actions are taken, Figure 2 is a schematic presentation of the expectations for 2009. Compare it to Figure 1 to get a better grasp of the title of this article.

Unfortunately, most companies will not follow the above clear path; rather they will act in panic and trim their work force. Many have already done so. That implies, that for a while, until the capacity will be restored, the OEM will be struggling to get sub‐systems and retail will be struggling to get merchandise. For companies that will act sensibly, a window of opportunity to increase market share is opening.

Dr. Eliyahu Goldratt

Internationally recognized leader in the development of new business management philosophies and systems, Dr. Goldratt’s work is carried out by consultants and educators around the world, and utilized by many of the world’s largest corporations, including IBM, Procter & Gamble, AT&T, NV Philips, ABB and Boeing. Unconventional, stimulating, and “a slayer of sacred cows,” Dr. Goldratt exhorts his audience to examine and reassess their business practices with a fresh, new vision.

THE GOAL, his best‐selling business textbook written in novel form, illustrates Dr. Goldratt’s Theory of Constraints (TOC), an overall framework for helping businesses determine: what to change —not everything is broken, what to change to —what are the simple, practical solutions, and how to cause the change — overcoming the inherent resistance to change. Dr. Goldratt has written numerous books on related topics, including IT’S NOT LUCK and CRITICAL CHAIN. His latest book, THE CHOICE, rapidly became the #1 bestseller in Japan. Dr. Goldratt is a frequent contributor to scientific journals, magazines and business publications; he sits on several editorial boards.

Dr. Goldratt is Founder and Chairman of the Goldratt Group (Goldratt Schools, Goldratt Marketing and Goldratt Consulting), which has taken the Theory of Constraints practices to new heights with VIABLE VISION, a platform to improve business productivity and profitability. By enhancing the quality of decision‐making, and improving communication and synchronization throughout the organization, Viable Vision is the strategy and specific tactics that deliver unprecedented performance and bottom‐line results in all aspects of a company’s operation.

Caros Amigos

Devido ao sucesso do post anterior sobre o assunto (clique aqui para ver o post anterior) e também ao grande número de pedidos sobre mais material sobre o livro A Meta, segue abaixo alguns resumos do Livro e também mais materiais interessante sobre a Teoria das Restrições (TOC – Theory of Constraints)

Clique abaixo e faça o download de todo o material.

- Abaixo segue o material que disponho sobre o assunto:

A META – Um Processo de Melhoria Contínua – Download do livro (E-book) completo em português.

- Resumos do Livro:

Download do Resumo 1 – Livro A Meta

Download do Resumo 2 – Livro A Meta

Download do Resumo 3 – Livro A Meta

- Abaixo coloco também para download dois artigos muito bons sobre a teoria das restrições ( TOC – Theory of Constraints):

A Teoria das Restrições aplicada a Gerência de Projetos: Uma Introdução à Corrente Crítica – Dr. Osvaldo QUELHAS e MSc. André B. BARCAUI.

Corrente Crítica – Uma Alternativa a Gerência de Projetos Tradicional – Dr. Osvaldo QUELHAS e MSc. André B. BARCAUI.

Caso necessite de material adicional sobre o livro A Meta ou sobre a Teoria das Restrições, entre em contato.

Eng. Luiz Junqueira – luizjunqueira@terra.com.br

Engenheiro civil formado pela UNESP, especialista em Engenharia de Produção pela USP e Gerenciamento de Projetos pelo ITA.

My very talented friend Clarke Ching has self-published his second novel Rocks into Gold (his first, Rolling Rocks Downhill, is due out later this year).

Rocks into Gold is a “parable for software developers who want to survive — and then thrive — through the Credit Crunch”. If you’re a subscriber to this blog you’ll probably know the book’s main message already; but read it anyway, because you probably also know someone who’s project, or job, or organisation, might just benefit from Clarke’s excellent re-telling — buy them a copy.

I think I delivered some shocking news at the Woodinville City Council meeting last night.

During Public Comment I shared some data provided by Realization on their website.  This data documents some of the successes organizations have had when they implement Critical Chain.  For the record, while I believe it’s fair to consider Realization as the top-tier provider of Critical Chain implementations, other companies and organizations that have implemented Critical Chain have reported similar results.

Here are some of the examples I shared last night, with results before and after Critical Chain implementation:

1. Medtronic USA
   Before: 1 software release every 6 – 9 months.
   After:  1 software release every 2 months.
2. Medtronic Europe
   Before: Average cycle time 18 months.
   After:  Average cycle time 9 months.
3. Valley Cabinet Works
   Before: 200 projects / year
   After:  334 projects / nine months
4. BHP Biliton
   Before: 25,800 man-hours to be completed in 8 months.  2 weeks late.
   After: 19,500 man-hours used.  Projects finished 3 weeks early.  25% productivity increase.
5. HP Digital Camera Group
   Before: 6 cameras launched per year; only 1 on time
   After: 15 cameras launched per year; all were on time; R&D 25% lower

When you’re inside an organization like the City of Woodinville and enmeshed in the day to day affairs of the City, it’s easy to believe that big jumps in the performance of the organization are not possible.   And so perhaps it’s a bit shocking when reality proves that other organizations, far more complex than yours, have made big jumps in their performance.

Please note that Realization provides many customer testimonials in video format on their website.  If you want to see some of the full presentations you can contact me.  For a period of time, Realization was giving away DVD sets from their yearly conference.  I have some of those for recent years.

On a related note, the Japanese Government’s Public Works reform, for example, has mandated that all contractors working for the Ministry of Land Infrastructure and Transportation must use Critical Chain.

You can also find references to Critical Chain in the Project Management Institute’s “Project Management Body of Knowledge,” also known as the “PMBOK.”  It’s important to understand, however, that because Critical Chain’s “new rules” for managing projects sometimes clash with what PMI has been preaching for many, many years, PMI is not yet embracing Critical Chain as vigorously as (in my opinion) they should.

Finally, I can give you a personal data point.  When I have used Critical Chain to manage projects it has always worked “as advertised.”  It’s hard to put into words the level of focus that Critical Chain (and Buffer Management, which is a critical-but-sometimes-overlooked aspect of Critical Chain) brings to project planning and execution.

I shared this data with the Council last night.  I asked them to look in to Critical Chain.  My hope is that some of them will do this.  If they do, I think they will find that the City of Woodinville could complete projects in about 2/3^rd’s the time that those projects would take if managed as projects are managed today within the City.

Finding success stories on Critical Chain is not difficult.   Any City Council member that can use Google can find such results.

Understanding how Critical Chain delivers its improved performance is more challenging.  Council Members that want to understand how Critical Chain really works will have to invest a little “mental sweat equity” to do it.  However, once this investment is made, I think they will understand why I consider Critical Chain to be an integral part of the “pot of gold” that I believe is waiting to be claimed by any City Council Member (current or future) that is willing to do the hard work required to claim it.