Finally: 🍿 The Consulting Story #03
5 steps to increase production in 6 months and reduce inventory a case study.
Theory of Constraints
Let’s discover 5 simple steps to improve the performance of any industrial or service organization, conceived by Eli Goldratt, the inventor of the Theory of Constraints.
We will talk about the example of manufacturing seats.
Let’s go!
A practical theory
It works wonders, as case studies support.
The goal: Define the steps to build a good improvement action plan.
We will mainly talk about rumbling factories 🏭, but we will also make parallels with the world of projects and services.👨💻
Prepare yourself to discover:
1. The 5 Focusing Steps of the Theory of Constraints.
2. The example of seats.
3. How to reconcile Operations and Finance.
4. Mistakes to avoid.
5. Why Good Lean and the Theory of Constraints marry so well.
Bottlenecks are the resources with the lowest capacity.
They limit the overall production and prevent meeting customer demand.
And so, you have remembered that everyone doesn't need to be 100% efficient.
Except for these famous bottlenecks!
(If you have doubts, re-read the previous edition)
So let's formalize
You must know the entities that limit your production or project completion. These resources have less capacity than others.
Step 1: Identify your bottlenecks
To find bottlenecks in the flow, look at the queues of work.
Where does work accumulate? On your boss’ desk? at your suppliers’? before welding? quality control?
Bottlenecks are where the queues are the longest. It is best to express these queues in hours.
Also, look at the evolution of volumes produced per week at different stations, and smooth them over several rolling weeks.
To see how the production chain behaves over time.
Beware of strong variations.💥
Step 2: Help the bottlenecks produce more
Then you want to maximize production of the limiting factor, catch up on your delays and meet your customers' demands.
Bottlenecks can work better. Toyota taught us that waste is everywhere and human ingenuity is limitless.
You should encourage teams to practice continuous improvement and collaborate to make the bottleneck operation easier, more ergonomic, simpler.
Don't leave the bottleneck alone. For better work, bottleneck stations will need collaboration from other services.
Cross-functional managers must facilitate this collaboration.
We will see in another update that we can better use the bottlenecks by making them work on products that bring in a lot of € compared to the hours they consume.
Step 3: Subordinate other operations to the bottlenecks
This means that the upstream and downstream processes of the bottleneck must synchronize with the bottleneck.
Downstream has little choice because it will struggle to produce more than the bottleneck.
But upstream must not drown the factory under work-in-process by working faster than the bottleneck.
“WIP (Work-in process) is not WIP (Work-in-progress)”
The non-bottlenecks should help the bottleneck, as the whole chain will benefit.
Therefore, developing multiskilling is crucial.
Upstream processes must feed the bottleneck and maintain a buffer stock to protect it.
Step 4: Invest in debottlenecking.
If the bottleneck remains in the same place. Invest to debottleneck sustainably.
Recruit, buy a better machine, etc.
But avoid moving to step 4 without having gone through step 2!
Lean and Toyota have shown that a lot can be done with little.
Continuous improvement allows for the development of employees, to educate everyone on the understanding of processes and techniques, and to make the organization stronger.
It is demanding but necessary to sustain the activity.
Step 5: Beware of inertia
There is a new bottleneck somewhere, so go back to step 1.
An example is better than a long speech
In the previous edition, I presented the example of a seat factory. I recall the main operations.
Operation 1: Laser cutting steel sheets.
Operation 2: Bending the parts in the press.
Operation 3: Welding the parts into sub-assemblies.
Operation 4: Painting the sub-assemblies.
Operations 5: Assembling the components to make a seat.
The problem:
🕑Deliveries were late, and the assembly had not the right parts to complete the seat assembly.
The clients want the seats needed to assemble a set of seats like wagons or cars.
Step 1: visual management reveals that bottleneck = welding
The visit to one of the factories revealed that the bottleneck was welding. Parts accumulated before the welding stations and that's where the longest queues were.
To systematically identify the bottlenecks, a visual management board was set up in the workshops to visualize the placement of work orders in the flow.
Step 2: feed the welders with kits
Once the bottleneck was identified, it was decided to rationalize the work.
The parts arrived in disorder because the previous operations favored local optima.
To facilitate the welders' work, the parts were grouped by sub-assemblies (kits) in the same box, whereas before the benders grouped the bent parts in the same way in a box, without considering the welders' needs.
You prepare kits instead.
Step 3: reduce batch size, 1 batch = 1 car
The batch sizes can be reduced to correspond at most to one wagon (the compromise was to allow grouping the lots when the wagons had to be assembled in the same week).
Laser cutting and bending must provide the right parts at the right time to the welders to enable them to weld what assembly and customers need.
The visual management board allows for visualizing this good synchronization.
Step 4: hire welders
Increase welding capacity. Welders were recruited to ensure the increase in volume.
The other stations had strong excess capacities, so the additional costs are low overall.
Results:
The results were great, compared to the initial situation, there is in fact a significant increase in 6 months.
Boost profitability – the accounting view
Not all products are equal.
Some are very difficult to weld, others are easy.
If the bottleneck determines the company's ability to generate revenue, how much is an hour of bottleneck sold for?
We see that it depends on the selling price of the seat models and the bottleneck time they consume.
Throughput€ per hour
The ratio (price of the seat - cost of raw materials of a seat) / hours consumed in welding is critical to compare the profitability of the seats with each other. It is called “throughput per hour”. It is the Theory of Constraints view of profitability.
We will have the opportunity to talk again about Throughput Accounting, to reconcile financial decisions and operational constraints.
Lean and the Theory of Constraints
The example shows that the ideas of reducing batch sizes, visual management, and kitting, specific to lean, are particularly powerful when well applied.
The 5 Focusing Steps allow these ideas and tools to be used in the right order and at the right place.
This avoids scattering and progress comes quickly.
Keep it simple and remember this:
• The bottleneck must have your attention. If you are the boss and you have no meeting on your agenda about the bottleneck this week, there may be a problem.
• Don't forget step 5 of the 5 Focusing Steps: Look for your new bottleneck after it has changed.
• You have internal bottlenecks as long as you have poor adherence to deadlines and as long as it's not the fault of suppliers or customers.
• The 5 Focusing Steps are not limited to Operations and factories. Apply them in services.
• Debottlenecking is not just the bottleneck manager’s business. Cross-functional collaboration is key.
By the way,
We can do a diagnostic of your operations or projects in only 2 days.
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It's time to act,
Etienne Lecerf,
Marris Consulting