In my previous blog, I used the “ten machine” manufacturing puzzle to establish the need to think systemically: in isolation each machine hit its performance target, in combination the system failed to reach its goal. The 5-Step Throughput Improvement Model is a proven process to solve this local optimization paradox.
Theory of Constraints views an organization as a chain of dependent activities or functions all working towards a goal. The constraint is the weakest link in the chain…the link that most severely limits the organization’s ability to achieve higher performance (throughput) relative to goal. In business, that goal is usually to make more money now and in the future. The following five step process will continuously improve performance (increase throughput) to the goal.
5-Step Throughput Improvement Model
Step 0: Define the system. In this context, the “system” includes both the goal and the activities and functions that deliver the goal: Who and what contributes to making money?
Step 1: Identify the system’s constraint. Finding the constraint in a large, complex organization can be a challenge. A simple rule of thumb: If a link in the chain is blocked then the constraint is downstream. If a link is starved then the constraint is upstream. More on finding the constraint in subsequent blogs.
Step 2: Decide how to exploit the constraint. How can we get the most out of the constraint: Approve overtime? Reduce set up times? Improve scheduling? Increase in-coming inspection?
Step 3: Subordinate everything else to the decisions made in Step 2. What can non-constraints do to ensure that the constraint is as productive as possible: Cross-train people? Improve quality? Take lunch and breaks at different times?
Step 4: Elevate the system’s constraint. Add capacity if and only if the constraint’s performance has been truly maximized.
Step 5: If a constraint is broken in Step 4, go back to Step 1. Repeat process on the next constraint until the organization’s goal has been met. If the goal is open ended (make more money!), then this process never ends.
If the plant is starved for orders, the constraint (also known as the bottleneck), is outside the plant in the marketplace. Does that invalidate this 5-step process? Not at all…apply it to your sales funnel.
The late Dr. Eliyahu Goldratt has a series of books on Theory of Constraints. His first book, The Goal, applies TOC to a manufacturing plant. A later book, Its Not Luck, applies TOC to a conglomerate’s portfolio of businesses. Both books are novels, not textbooks, and they are very easy reads. I highly recommend them.
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Bottleneck = same as constraint
Sales Funnel = customer journey from enquiry to order