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🦉 10x curiosity - Theory of Constraints - The Goal

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🦉 10x curiosity

December 11 · Issue #236 · View online

🦉 A weekly sample of links that made me think 🤔


Thinking…
The output of a system is determined by one constraint or bottleneck. Therefore to maximise the production capacity of the system you need to maximise the throughput at the bottleneck. Achieving this forms the underlying philosophy of the Theory of Constraints.
The Theory of Constraints (TOC) is a suite of management concepts developed by Dr. Eliyahu Goldratt and written about in his terrific book “The Goal.” It helps managers decide:
  1. What to change?
  2. What to change it to?
  3. How to cause the change?
TOC systematically focus efforts, energy and attention on the “system constraint.” This constraint, or bottleneck, restricts the output of the entire system and at the same time represents the primary leverage point for improving it.
First understood by Henry Ford, then improved by Toyota’s Tacho Ohno, TOC builds on the Four Fundamental Principles of Flow:
  1. Optimizing flow: The primary objective of operations is to improve flow (also known as throughput, defined as revenue minus marginal costs)
  2. Non-production: The key to improving flow is establishing a practical mechanism to determine when not to produce
  3. Abolishing local optima: Local efficiencies (better known today as “local optima”) must be abolished
  4. Focusing process: Improvement must be guided using a focusing process, directed to where it will make the biggest difference at any given time
Goldratt develops a 5 step process to implement TOC through your work:
  1. Identify the constraint
  2. Optimize the constraint
  3. Subordinate everything else to the constraint 
  4. Elevate the constraint
  5. Return to step 1 - Do not let inertia become the constraint.
Lets talk about these in turn.
1 . Identify the constraint
Constraints can take one of three forms:
  1. Resource Constraints - resources such as one particular machine (or no. of workers, or cash) which blocks the flow based on it’s limited capacity with respect to executable orders in hand.
  2. Policy Constraints - policies, practices or metrics that artificially distort flow due to their poor alignment to the overall performance of the system.
  3. Permanent Constraints- limiting factors that are always present in every business such as sales skill (the ability to charge higher prices for the exact same products), R&D/new product development/innovation (the ability to create amazing new products that customers love) and management attention
2 . Optimise or Exploit the constraint
from Nayima:
  • Remove any non-value adding work.
  • Remove or limit interruptions. Remove impediments.
  • Let the bottleneck resource work at a steady pace.
  • Provide high quality tools and materials.
  • Carefully prioritise the bottleneck’s work so that they always work on the most important tasks.
  • Ensure that there’s always enough work to do for the team (the backlog), so that they don’t become idle through lack of input.
This short video below provides an excellent example of how you can exploit a constraint without necessarily expending a lot of capital to change it.

Theory of Constraints (TOC) 3 Bottle Oiled Wheels Demonstration
3 . Subordinate every other decision to the bottleneck -
Those resources that are not bottlenecks have (by definition) some extra capacity. Use that capacity to
  • Letting the non-bottlenecks help the bottleneck or take over some required but low value adding work.
  • Everybody works at the pace of the bottleneck, no faster no slower, to avoid overloading the bottleneck with work in progress.
  • Those in front of the bottleneck ensure that the buffer of work for the bottleneck is always filled, but not too much.
  • Those after the bottleneck ensure that they have some slack to deal with variations in output of the bottleneck.
  • Non-bottlenecks ensure that only high quality work in progress handed to the bottleneck.
4 . Elevate the bottleneck
Invest resources and time to improve the performance of the bottleneck, so as to increase their output (and thus the output of the system)
  • Adding more people or machines
  • Training and mentoring
  • Better tools, faster machines
  • Switching to a different technology
5 . Return to step 1 - Do not let inertia become the constraint.
The inevitable result of the first four steps, and the reason this is a “continuous” improvement method, is that the constraint moves somewhere else. This step insists that you start back at the beginning, and don’t let inertia become the constraint.
The Agile coach has a handy summary PDF as part of their “I’m not the Bottleneck” game
Tiago Forte has a terrific series of posts that explains in detail all aspects of the Theory of constraints methodology.
Make a list of all active projects in the company or department, and cross off half of them, strictly prohibiting any work on the inactive projects until further notice.
As WIP drops, the least constrained resources will start to run out of things to do. This is a pivotal moment — you have to avoid the temptation to either “load up” these resources with new tasks, or fire them as “excess capacity.”
As unconstrained resources hold off on starting new projects, they will start sending less work to the constraint, causing throughput to go up. This is the lightbulb moment — when nearly everyone works less, and the company as a result produces more. It is not difficult at this point to convince everyone that their job is to do whatever it takes to maximize the constraint’s productivity, instead of working as many hours as possible.
Busywork through the organisation inevitably impacts the bottleneck
Busywork through the organisation inevitably impacts the bottleneck
Finally Tiago Forte highlights how the modern tendency to busyness and busywork results in even worse output of the bottleneck:
a company where everyone is busy working is terribly inefficient. The only way that’s possible is if everyone is optimising their own productivity, at the expense of the bottleneck’s productivity. And it is only the productivity of the bottleneck that matters to the throughput of the company.
If you believe that local optima add up to a global optimum, there can only be one solution to low organisational performance: improve the throughput at all sections of the pipe.
But adding more capacity upstream or downstream of the bottleneck will make things worse, not better. Try to “improve” any other point but the bottleneck, and you’ve made the whole system worse.
Any improvement not at the constraint is an illusion.
Let me know what you think? I’d love your feedback. If you haven’t already then sign up for a weekly dose just like this.
Links that made me think...
The Universal Success Formula | Organizational Physics by Lex Sisney
A Tale of Two Captains: Making the Case for the Universal Applicability of Leaders Everywhere | MIX M-Prize
7 Steps to Learning from Our Mistakes – David Marquet
1,000 little steps | Seth's Blog
ZF's 'External Side Airbag' Could Make Crashing Way Safer | WIRED
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