TOC Thinking: Removing Constraints for Business Growth by Yishai Ashlag
1 The Goal “The ultimate goal is to create harmonious and sustainable growth” un ÜstüThe starting point of this quest is not moving forward with the things we should do, but rather stop doing the things we should not do. seeking to achieve the best results may prevent us from achieving a good enough progress. The system’s constraint is actually the leverage point.
2 Dealing with Uncertainty “Don’t force certainty on uncertain situations.”
Accuracy gives us a false sense of security.
Since uncertainty cannot be eliminated, fluctuations in results are unavoidable.
The right approach to mitigate the impact of uncertainty is to reduce the supply time.
This is achieved by holding inventories in aggregation points along the supply chain.
The notion is that the more detailed the plan, the less we leave to chance.
The detailed plan just gives us a false sense of accuracy and predictability.
The combination of uncertainty and dependencies causes chance to be against us.
3 Dealing with Conflicts “The fear of ‘tug of war’ causes managers to look for compromise instead of solutions.”
In general, we deal with three different types of conflicts:
1) internal conflicts in situations where we face conflicting requirements to achieve our objective;
2) conflicts with other functions in the organization; and
3) external conflicts with vendors or clients.
But optimization is not a solution. It is merely the best-known compromise between the conflicting requirements. A solution calls for change in the supply mode, so with smaller inventories we can support a higher level of availability. This typically calls for higher frequency of replenishment coupled with holding inventory at aggregation points. A solution is defined as finding a mode of operation that will satisfy both needs.
4 Dealing with Complexity “People fear complexity and admire sophistication (perceived complexity), both of which have negative consequences.”
Complexity slows us down by limiting our ability to use our intuition.
Breaking the organization into smaller units requires more synchronization efforts, and thus increases complexity. It also promotes local optimum behavior, which makes the organization less focused.
The right processes call for frequent introduction of new merchandise and frequent replenishment, coupled with special emphasis on protecting the availability of best-sellers only.
5 Sophistication “In the same way that accuracy is used to mask uncertainty, sophistication is used to mask a fundamental misunderstanding of reality. People have developed a fascination with sophistication, as it is assumed to be a proxy for intelligence.”
We force certainty on uncertainty by excessive accuracy
We force compromise on conflict by excessive optimization
We force simplicity on complexity by excessive specialization
Excessive accuracy, optimization and specialization are the major elements of any sophisticated solution. Sophisticated solutions tend to use statistical tools to provide accurate answers. Sophisticated solutions also tend to use advanced math to solve optimization problems.
Moreover, these solutions tend to address problems that are defined too narrowly due to over-specialization.
For example: Trying to define the right end-of-season discount policy instead of finding ways to prevent overstocking.
If you are approached with a sophisticated solution, you can be certain of one thing: It is most likely a solution to someone else’s problem, not yours.
6 Management Attention “Management attention is the ultimate constraint of the organization.”
Management attention is consumed by the effort to achieve the desired results while dealing with three main challenges: Uncertainty, Conflicts, and Complexity.
Too often we try to force the desired results in spite of the challenges, rather than creating a reality in which these challenges are solved, or at least better mitigated.
The problem with this approach is twofold. One, we leave the exposure to uncertainty, the existing conflicts and the level of complexity untouched, and as a result we limit the potential for improvement.
Two, as time goes by, the level of noise created by these challenges tends to increase, and we find ourselves spending more and more time fighting the fires that result from these challenges.
Every time we manage by functions and not by processes, we create more conflicts like these.
7 Value “Value is created by removing a significant limitation for the customer, in a way that was not possible before, and to the extent that no significant competitor can deliver.”
The common definition of value is the ratio between the features and benefits of the goods or service to its price. The question is, how do we know what exceptional value is?
The answer is that this kind of value is created by removing a significant limitation in a way that was not possible before, and to the extent that no significant competitor can compete with.
We must first and exclusively strive to understand the value we plan to deliver, rather than think about how to protect our business.
There are four major layers of protection that are created in the pursuit to deliver value: paradigm shift, leadership position, unique processes, and benefits of scale.
In general, people do not like to go through paradigm shifts, as such shifts take them out of their comfort zone.
8 Growth Strategy—Viable Vision “Build, Capitalize and Sustain are three elements that each growth strategy should contain.”
The first phase is all about preparation: Building the required unique capabilities and assets that are necessary to deliver the exceptional value in the right scale.
capitalization, is all about creating a successful business around unique capabilities and the value they provide. To sustain the growth we have to prevent future roadblocks.
Providing more value without losing focus can be achieved when the company concentrates on removing the same limitation to a higher degree over time.
9 Process “Process definition requires more than a series of action steps; it needs clear documentation of the relevant whys and hows.”
As we strive for ongoing improvement, some existing processes have to be challenged.
Process follow up is critical for success. But following it blindly is dangerous.
There are two different kinds of logic that need to be documented along with each process.
The first one is the logic behind every step in the process, or, in other words, the reason that every step is needed.
The second rationalization addresses how a given process is in line with the overall business strategy and the value the company aims to provide.
In order to properly document and audit the organization’s processes, Goldratt introduced a logical tool known as the “Strategy and Tactic Tree,” a logic tree that ties the organization’s strategy and its key processes together.
The starting point—the highest level of the tree—is the organization’s ultimate goal.
Every level down in the tree represents an intermediate objective toward the organization’s goal, as well as the tactic used to achieve this intermediate objective.
It usually takes six levels to fully describe the connection between the ultimate goal and the complete set of processes necessary to achieve this goal.
the Strategy and Tactic Tree defines strategy and tactic as pairs in every level.
In every level we ask what our strategy is—what is our objective and what is the tactic we must use to achieve this strategy?
Necessary assumption: explain the need for this step and its strategy
Strategy: what is the objective or state of being this step is trying to achieve
Parallel assumptions: explain why the tactic achieves the strategy. What are the key assumptions that make the tactic effective?
Tactics: the mode of operation required to achieve the strategy.
Sufficiency assumptions: why there is a need to go another level down and define another level of intermediate objectives. What is the main challenge in creating the mode of operation as written in the tactic?
10 Focus “Focus is not just what to do, but mainly what not to do.”
Focus is not about just saying “yes” to the right things, but more importantly saying “no” to many good opportunities we encounter.
first century Roman philosopher Seneca, who defined luck as an opportunity that met preparation.
When we simplify reality and break it into fields of specializations, we increase the chances of dealing with symptoms (undesirable effects) and not the root cause (core conflict).
To have focus, we need to understand and define what the focal/critical points of the system are.
11 Constraint “In management, constraint should have a positive meaning. It is the key indicator for where and how to focus the organization’s improvement efforts.”
The right and consistent answer is that we should focus our improvement efforts on improving our constraint. When the constraint is policy, we don’t look to exploit it but to change it.
The vision of the CEO of this company is to turn the catalog into something like a fashion magazine where the customers can buy what they see.
When there is a constraint in sales we have to understand the conversion ratio of the different steps in the sales process. Having a constraint in marketing means that creating the required awareness is the challenge.
When the market is the constraint, the attractiveness of our offer is the limiting factor.
To keep the company stable while growing, the constraint should be kept consistently at one place outside marketing or the market.
The constraint should be kept as a key process in the capitalization stage.
For example, in retail the constraint should not be in marketing (the chain appeal or value offer), store format, merchandise management, or supply chain. It should be in the pace in which the retailer can successfully open new stores.
12 Flow “The primary objective of operation is flow.”
When we focus on the actions that fundamentally enhance the flow we are likely to achieve all the above objectives. When flow increases, capacity also increases.
The first step in improving the flow is to take the right actions to prevent overproduction and local efficiencies.
Once we cease making these mistakes, the next step is to focus on the major disturbances in flow and remove them.
This will increase the system productivity as well as its flow. In order to increase flow, three major concepts need to be implemented:
- A practical mechanism to indicate when not to produce must be established
- Local efficiencies must be abolished
- A focusing process to balance and improve the flow should be put in place
As Goldratt showed, the most intuitive basis for the mechanism to restrict overproduction is not space or inventory but time: if one wants to prevent production ahead of time, one should not release the material ahead of time.
The robustness of the time-based mechanism stems from the fact that it directly restricts the overall amount of work in the system rather than restricting the amount of work between any two workstations.
Restricting the amount of work between two workstations increases the dependencies on the shop floor and thus makes it more susceptible to noise/disturbances.
The time-based system also provides the flexibility required by many industries, since the production floor is not committed to replenishing the past demand.
The use of a time-based system requires that for each order we should restrict the release of the corresponding material to an appropriate amount of time before the due date of the order.
We need to choke the release of materials and release them later than we used to, with a shorter time buffer than our current lead time.
A good time buffer will be one that commands a ratio of 5 to 1 between the expected lead time and touch time. If we strive initially for a shorter lead time we may risk going to the other extreme and starve the floor. We are also likely to have a hard time meeting our promised due dates.
Since the common lead time in many cases mandates a ratio of 10 to 1 between the lead time and the touch time, this means that in many cases to prevent overproduction we need to cut the lead time by half.
This is very counterintuitive especially in environments that suffer from poor due date performance to start with.
Cutting the release time by half is just the starting point
This is done by dividing the time buffer into three zones.
The color system also provides us a straightforward priority system.
Ford with space, Ohno with inventory, and Goldratt with time: here are three different applications of the concept of preventing overproduction.
13 Bad multitasking “Bad multitasking is the main blockage to flow in high touch time environments.”
Bad multitasking prolongs the completion time of each task by three-to fourfold.
Partial staffing (allocating a partial team for a task) is also a form of bad multitasking.
Despite its massive negative impact, bad multitasking is the common mode of operation.
To reduce the level of bad multitasking and improve the flow we have to control the number of projects and tasks in the system.
There are four mechanisms that need to be put in place:
- Full kit; projects and major tasks like integration can be started only when their full kit is ready
- Freeze in the project level; since the current reality is that there are too many projects in the system, we need to discover what the reasonable number is and freeze the rest based on business priorities.
- Freeze in the projects’ leg level; starting all projects’ legs as early as possible also leads to artificial load in each project and on different resources. We have to release the leg based on a reasonable buffer so each leg will not delay integration with the critical chain and unnecessarily prolong the project’s completion.
- Freeze in the tasks’ level: limit the number of open tasks a resource can have on its desk.
14 Measurements “Tell me how you measure me and I will tell you how I behave.”
Measurements drive behavior. Almost every single measurement on its own has the potential to cause a distortion in behavior leading to local/suboptimal results.
In isolation, the measurement can be misleading, but with the right array of measurements, earnings per share can provide a good description of the actual picture.
Another approach to dealing with the potential of distortion is to use the measurements for control, but not for driving results. Measurements of local optimum behavior should be abolished and replaced with holistic measurements.
If the company produces to order we should look at on-time delivery as a measure.
If the company produces to stock we should look at the stock buffer level as a measurement.
15 Resistance to change “Overcoming resistance to change is a major challenge for any implementation. Yet dealing with it on a personal level is a mistake.”
When we face resistance to change we tend to blame the person resisting and not the nature of the change or the way it was presented.
Yet our aim is not to change peoples’ personalities but to implement our suggested change.
The productive approach is to address the change as an offer we have to sell.
There are four aspects regarding the change that we have to consider when we build our offer.
What are the pros and cons of the suggested change?
What are the pros and cons of staying in the current situation?
We have to answer these questions not from our perspective, but from the perspective of the individual/organization we are trying to convince.Goldratt suggested a So-cratic-based buy-in process. The process contains six steps.
Only when an agreement is achieved in one step can the discussion move to the next.
The steps in the process are the following:
Agreement on the problem. The definition of the problem is the gap between the current and the desired reality.
Agreement on the direction of the solution.
To get a consensus on the right direction, we need to reach an agreement first on the criteria for a good solution.
Agreement on the solution. In this step we need to demonstrate that implementing the suggested solution will close the gap between the current and the desired states.
Yes, but. Dealing with the negative ramifications of the solution.
Not all of them need to be solved completely but we do need to show that the risk or effort associated with them is manageable.
Obstacles. At this stage the main concern is how tangible the solution is.
The right way to address this stage is to list all the obstacles and define for each one the intermediate objective that will overcome the obstacle.
Call to action. Once we translate each intermediate objective into an action plan, we need to synchronize and schedule the different action plans as part of one road map.