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1Copyright Dr EM Goldratt & Avraham Y. Goldratt Institute, 2000
Deciding onDeciding onTheory ofTheory of
ConstraintsConstraints
(TOC)(TOC)Powerful SolutionsPowerful Solutions
Start with theStart with theRight QuestionsRight Questions
Focusing improvementFocusing improvementefforts for maximumefforts for maximumimpactimpact
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2Copyright Dr EM Goldratt & Avraham Y. Goldratt Institute, 2000
AGI is the birthplace of TOC. It was founded as an
educational institute in 1986 by Dr. Eli Goldratt,
author of the bestsellers The Goal,Its Not Luck, andCritical Chain. Today, AGI is home to the worlds
foremost TOC experts and practitioners, with 14
offices across 6 continents. AGI is the worlds largest
consulting firm specializing in the application of TOC
to achieve significant bottom-line results inorganizations as diverse as industry, services,
government, education, defence, and healthcare.
Avraham Y. Goldratt Institute (AGI)Avraham Y. Goldratt Institute (AGI)
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3Copyright Dr EM Goldratt & Avraham Y. Goldratt Institute, 2000
This presentation contains material that is the
intellectual property of the Avraham Y.Goldratt Institute and of Dr EM Goldratt and
may not be reproduced or distributed in any
form, in whole or in part, without the priorwritten consent of the Avraham Y. Goldratt
Institute.
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4/574Copyright Dr EM Goldratt & Avraham Y. Goldratt Institute, 2000
Deciding on TOCDeciding on TOCDeciding on TOC
The holistic approach tobusiness.
Presenters: Kathryn A. Leishman
Dr Alex Klarman
Materials developed by Dr EM Goldratt and
modified by D Houle, KA Leishman and Dr A
Klarman.
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5/575Copyright Dr EM Goldratt & Avraham Y. Goldratt Institute, 2000
Theory of ConstraintsTheory of Constraints
A toolset of logical Thinking Processes Generic solutions derived from applying
those thinking processes to a variety of
functional constraints
A focus on constraints
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6/576Copyright Dr EM Goldratt & Avraham Y. Goldratt Institute, 2000
5 Focusing Steps of TOC5 Focusing Steps of TOC1. IDENTIFY the systems constraint(s).
2. Decide how to EXPLOIT the systemsconstraint(s).
3. SUBORDINATE everything else to the above
decision.4. ELEVATE the systems constraint(s).
5. If in a previous step a constraint has beenbroken, go back to step 1, but do not allowINERTIA to cause a systems constraint.
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7/577Copyright Dr EM Goldratt & Avraham Y. Goldratt Institute, 2000
Typical TOC Results Are:Typical TOC Results Are:
Revenue / Throughput - UP 63% Revenue / Throughput / Profit UP 76%
Due Date Performance UP 44%
Inventory Levels DOWN 49%
Lead Times DOWN 70%
Usually within a few months to a year.
Data from The World of Theory of Constraints by V. Mabin and S. Balderstone, 2000.
Mean of published results excluding outliers eg. 600% improvement by Lucent
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8/578Copyright Dr EM Goldratt & Avraham Y. Goldratt Institute, 2000
Todays Presentation IncludesTodays Presentation Includes
Examples of the use of the ThinkingProcesses in answering these 3 questionso What to change?
o To what to change?
o How to cause the change?
A reliable process for starting to implementTOC within the organisation
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9/579Copyright Dr EM Goldratt & Avraham Y. Goldratt Institute, 2000
The only prudent way to manage aThe only prudent way to manage a
businessbusiness
is never to lose sight of the globalis never to lose sight of the global
picture.picture.
Two different perspectives are: A dollar + a dollar + a dollar accumulates a fortune
If you can find a leverage point you can move theearth. (Archimedes)
TOC follows the second approach.
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10/5710Copyright Dr EM Goldratt & Avraham Y. Goldratt Institute, 2000
Holistic approachHolistic approach--an example from the steel industryan example from the steel industry
Logistic - inventories are too high.
Service - too many customer complaints. Finance - too long pay-back periods.
People - bad internal human relationships.
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11Copyright Dr EM Goldratt & Avraham Y. Goldratt Institute, 2000
510
Most people behave in line
with the way they are measured.
520In most departments some
items require less time per
ton than others.
560
A V-plant produces items
through a process havingmany divergent points.
530Every additional set-up
reduces the measured
tons/hour.
525
Non-production results
in zero tons/hour.
515Departments try to
maximize their performance
as measured by tons/hour.
540
To maximize their performance
of tons/hour in a givenmeasurement period,
departments tend
to produce the fast items
at the expense of the
slow ones..
545
To maximize their
performance of tons/hour
departments tend toproduce for stock even
when there is no market
request for the short or
medium horizon.
550
To maximize their
performance of tons/hourdepartments tend to pull
ahead orders that enable
increasing a batch size.
570
To maximize their performance of
tons/hour departments tend to take
actions which result in stealing.
500
For a long time tons/hour has been the prime
operational measurement in the steel industry.
510
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12Copyright Dr EM Goldratt & Avraham Y. Goldratt Institute, 2000
510
Most people behave in line
with the way they are measured.
520In most departments some
items require less time per
ton than others.
560
A V-plant produces items
through a process havingmany divergent points.
530Every additional set-up
reduces the measured
tons/hour.
525
Non-production results
in zero tons/hour.
515Departments try to
maximize their performance
as measured by tons/hour.
540
To maximize their performance
of tons/hour in a givenmeasurement period,
departments tend
to produce the fast items
at the expense of the
slow ones..
540
To maximize their
performance of tons/hour
departments tend toproduce for stock even
when there is no market
request for the short or
medium horizon.
550
To maximize their
performance of tons/hourdepartments tend to pull
ahead orders that enable
increasing a batch size.
510
To maximize their performance of
tons/hour departments tend to take
actions which result in stealing.
500For a long time tons/hour has been the prime
operational measurement in the steel industry.
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13Copyright Dr EM Goldratt & Avraham Y. Goldratt Institute, 2000
The cloud of operations.The cloud of operations.
ABe a good
manager.
BConstantly
fight to reducewaste.
CConstantly fight
to increase
flow.
DUse efficiencies
as primemeasurement.
D'Don't use
efficiencies as a
measurement.
A resource standing idle is a major waste.Because...
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14Copyright Dr EM Goldratt & Avraham Y. Goldratt Institute, 2000
Dependent resourcesDependent resources
FLOW OF MATERIAL
X
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15Copyright Dr EM Goldratt & Avraham Y. Goldratt Institute, 2000
The holistic approachThe holistic approach
What to change - what is the core problem? To what to change - what is the solution?
How to cause the change?
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16Copyright Dr EM Goldratt & Avraham Y. Goldratt Institute, 2000
Session 1Session 1
OperationsOperations
What to change? Erroneous
assumption that a resourcestanding idle is a waste.
To what to change?
o Identify the constrainto Exploit the constraint
o Subordinate to the
constraint
How to cause the change?Drum Buffer Rope and
Buffer Management withconsensus on procedures.
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17Copyright Dr EM Goldratt & Avraham Y. Goldratt Institute, 2000
ResultsResults -- OperationsOperations
Allied Dunbar (insurance, UK) investigatedthe sales and telemarketing processeso Sales increased 67%
Oregon Freeze Dry, USA.o Late shipments due to out of stock 245 to 11
oSales up 20%
o On time shipments to 100%
o Market to order lead time down 50%
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18Copyright Dr EM Goldratt & Avraham Y. Goldratt Institute, 2000
Session 2Session 2
Finance and MeasurementsFinance and Measurements
What to change? Erroneousassumptions that the local impact
equals the global impact on the
organisation.
To what to change? T, I, OE and5 Focusing Steps.
How to cause the change? Re-
assessment of investments,products and services. Resolution
of conflicting measurements.
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19Copyright Dr EM Goldratt & Avraham Y. Goldratt Institute, 2000
ResultsResults Finance & MeasurementsFinance & Measurements
Delta, USA, collections (many different fareprices, charge back to travel agents forreductions over allowable, long queue for
processing one right off for US$98million)
o management tool for assessing contribution /constraint minute / error type
o $ up, time to process down
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20Copyright Dr EM Goldratt & Avraham Y. Goldratt Institute, 2000
3. Engineering, product development and3. Engineering, product development and
project management.project management. What to change? Erroneous assumption that in order to
finish a project on time we have to strive to finish every task
on time.
To what to change? Stagger projects. Concentrate safety inbuffers and use buffer management to set priorities.
How to cause the change? Consensus on Critical Chain andthe mechanism to create buffer management.
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21Copyright Dr EM Goldratt & Avraham Y. Goldratt Institute, 2000
ResultsResults -- Engineering, product developmentEngineering, product developmentand project management.and project management.
Antarctic Support Associates, USA / Antarcticao RV Laurence M Gould survey boat in October the
project was running 4 months late, would miss season
brought in on schedule 11th December.
Israeli Aircraft, Israelo F-16 airframe & structure upgrade from 8 to 5 months
per unito Number of F-16 upgraded up 50%, improved readiness
and saved $5 million.
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22Copyright Dr EM Goldratt & Avraham Y. Goldratt Institute, 2000
Session 4Session 4
DistributionDistribution What to change? Erroneous assumption that
the closer to the client inventory is held, the
better the service level.
To what to change? Pull versus push.
How to cause the change? Replenishmentand Buffer Management. Measurements ofThroughput $ day and Inventory $ day.
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23Copyright Dr EM Goldratt & Avraham Y. Goldratt Institute, 2000
ResultsResults DistributionDistribution
Orman Grubb, furniture manufacturer, USAo Improved to 25 inventory turns
o more timely receivables average 29 days
o top 50 dealers had 46% increase in sales and
dont want to change to other suppliers
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24Copyright Dr EM Goldratt & Avraham Y. Goldratt Institute, 2000
Session 5Session 5 -- MarketingMarketing
If all the improvements that were initiated by the previous sessions are not converted
into a decisive edge, the majority of the potential benefits will not be realized.
Rarely can a company devise effective marketing without the involvement and
contribution of managers from all functions. The challenge is to put the systematic
framework that enables everyone to contribute.
What to change? Erroneous assumption ofthe perception of value of a product or
service being based on the efforts of the
supplier to design, produce, distribute,market etc.
To what to change? Perception of value
determined by the benefits expected from
acquiring the product or service.
How to cause the change? Building Un-
Refusable offers.
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25Copyright Dr EM Goldratt & Avraham Y. Goldratt Institute, 2000
ResultsResults -- MarketingMarketing
Media Automotive, South Africao Un-Refusable Offer to Italian manufacturer of
auto brake hoses to place brake hoses in a
bonded warehouse, paid for as withdrawn,exclusive deal.
o Whats in it for Italians? Sales increased from
SAR 24,000 to SAR 2 million in one year.
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26Copyright Dr EM Goldratt & Avraham Y. Goldratt Institute, 2000
Session 6: BuySession 6: Buy--In and SalesIn and Sales
What to change? Erroneous assumption that the first step inthe sales process is to introduce or present your product or
service. To what to change? Overcoming each layer of resistance to
change or buy-in in turn.
How to cause the change? Preparation of the buy-in processand preparation of the sales team to follow the process.
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27Copyright Dr EM Goldratt & Avraham Y. Goldratt Institute, 2000
ResultsResults BuyBuy--In and SalesIn and Sales
Orman Grubb, furniture, USAo Dealer sales up 100%
o Opened 37 new dealerships
o Their distribution solution was a significant
change which has to be sold differently.
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28Copyright Dr EM Goldratt & Avraham Y. Goldratt Institute, 2000
Session 7Session 7Managing PeopleManaging People
What to change? Erroneous assumption that the way to manage
people is through authority and power. To what to change? Empowerment, consensus, conflict
resolution and team work.
How to cause the change? Use and give powerful day to daytools.
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29Copyright Dr EM Goldratt & Avraham Y. Goldratt Institute, 2000
ResultsResults Managing PeopleManaging People
Alliance Group, meat processing, NZo over 6 plants, no stop work situations
compared to several the previous year
o management, line foreman and operators allsaid atmosphere improved, suggestionsincreased and more implemented.
An individualo negotiated 50% pay rise and boss saw it as a
good deal.
S i 8S i 8
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30Copyright Dr EM Goldratt & Avraham Y. Goldratt Institute, 2000
Session 8Session 8
Strategy and tacticsStrategy and tactics What to change? Erroneous assumption that a good strategy is to
maximise net profit by reducing OE. To what to change? Create a decisive dominant edge.
How to cause the change? Immunising the future of the company,
coherent strategy and tactics supporting the direction chosen.
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31Copyright Dr EM Goldratt & Avraham Y. Goldratt Institute, 2000
ResultsResults Strategy and TacticsStrategy and Tactics
Valmont Industries, Light Pole division,USAo Sales up 40% per year
o OE up 10% per year
o Each year for the last 12 years
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32Copyright Dr EM Goldratt & Avraham Y. Goldratt Institute, 2000
Where should we start?Where should we start?
In the section which is the mostreceptive?
In the section which is the mostrepresentative?
In the section which is the constraint?
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33Copyright Dr EM Goldratt & Avraham Y. Goldratt Institute, 2000
What happens to a section which is managedWhat happens to a section which is managedaccording to a holistic approach while the restaccording to a holistic approach while the rest
of the organization is managedof the organization is managedconventionally?conventionally?
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34Copyright Dr EM Goldratt & Avraham Y. Goldratt Institute, 2000
Who will win?Who will win?
YX
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35Copyright Dr EM Goldratt & Avraham Y. Goldratt Institute, 2000
Requirements for X to succeedRequirements for X to succeed
How does X identify Y? How does X cause Y to move beforepressure builds?
How does X refrain from fighting with thesystem?
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36Copyright Dr EM Goldratt & Avraham Y. Goldratt Institute, 2000
Improve the
performance of
the company.
Move the company
on a
holistic approach.
Start with a
confined TOCapplication.
Dont start another
short-lived
program.
Dont start with a
confined TOC
application.
Where is the proper place to start?
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37Copyright Dr EM Goldratt & Avraham Y. Goldratt Institute, 2000
Improve the
performance of
the company.
Move the company
on a
holistic approach.
Dont start another
short-lived
program.
Start by devising
the companysstrategy.
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38Copyright Dr EM Goldratt & Avraham Y. Goldratt Institute, 2000
Alternatively use LinkAlternatively use Link--ChainChain
approachapproach
X understands the cause and effect relationshipwithin its link and between links in the chain
X identifies Y
X induces Y to understand the cause and effectrelationships within its link
X implements improvements within its linkmaking sure that Y is constantly updated
As soon as Z joins, X & Y & Z go up to top.
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39Copyright Dr EM Goldratt & Avraham Y. Goldratt Institute, 2000
Holistic approach
start with:
Devising a winning strategy
Backed up by prudent tactics
Laid out in a detailed action plan
All in Consensus
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40Copyright Dr EM Goldratt & Avraham Y. Goldratt Institute, 2000
True consensusTrue consensus
It is not enough that each top manager
agrees on the outcome
It is not enough that each top manager feelsthat his/her concerns have been adequately
addressed.
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41Copyright Dr EM Goldratt & Avraham Y. Goldratt Institute, 2000
True consensus, commitment andTrue consensus, commitment and
responsibilityresponsibility
To ensure that the resulting action plan will be
aggressively implemented each top manager
should rightfully feel that his/her contribution
was vital;
that the outcome is his/her baby,
both on an overall level and within his/her areaof responsibility.
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42Copyright Dr EM Goldratt & Avraham Y. Goldratt Institute, 2000
ObstaclesObstacles
The strategic direction concentrates only onone side of the existing conflict.
Obstacle: Th i di i
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43Copyright Dr EM Goldratt & Avraham Y. Goldratt Institute, 2000
Obstacle: The strategic direction concentrates
only on one side of the existing conflict.
For some people in the management group (the impatient
visionaries) addressing a particular core problem is such aburning issue, that they simply say lets move, lets DO the
improvement.
Consciously or subconsciously these people look at onlyone side of the conflict and ignore the other side, because
somehow they have learned that looking at both sides willslow them down.
Obstacle: The strategic direction concentrates
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44Copyright Dr EM Goldratt & Avraham Y. Goldratt Institute, 2000
So, why wont we build into their experience that the best way tocharge ahead is by looking at the other side of the conflict,
because it contains the erroneous assumption.
g
only on one side of the existing conflict.
Lets not forget that there are others on the same management
team that dont ignore the other side of the conflict.
What are the chances now of getting a consensus on the strategic
direction?
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45Copyright Dr EM Goldratt & Avraham Y. Goldratt Institute, 2000
ObstaclesObstacles
The strategic direction is nothing but polishingan existing compromise.
Obstacle: The strategic direction is nothing
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46Copyright Dr EM Goldratt & Avraham Y. Goldratt Institute, 2000
So, why wont we build into their experience that breaking the
conflict cloud is by far safer than polishing the compromise.
but polishing an existing compromise.
This is coming from other members of the management team
(the prudent conservatives) who have learned the hard way,
that if you go like a bull in a china shop, what you usually getis broken china.
There are two sides to this conflict and you better find your
way between them, otherwise youll just break the china. These are the people, who have learned to move slowly, even
when moving on the compromise, because they recognize that
this requires a trade off between problems.
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47Copyright Dr EM Goldratt & Avraham Y. Goldratt Institute, 2000
ObstaclesObstacles
The suggested tactics are based on prevailingerroneous assumptions.
Obstacle: The suggested tactics are based on
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48Copyright Dr EM Goldratt & Avraham Y. Goldratt Institute, 2000
What is happening here, is that as human beings we do learn
from our experience and we do extrapolate from our
experience, which is good.
When do we get into trouble?
When an assumption that we took for granted turns out to beinvalid and we continue to extrapolate from our past
experience, then we make mistakes.
prevailing erroneous assumptions.
Obstacle: The suggested tactics are based on
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49Copyright Dr EM Goldratt & Avraham Y. Goldratt Institute, 2000
prevailing erroneous assumptions.
So, what we have to do is to take all of the experience of topmanagement (operations, finance, engineering, distribution,
marketing, etc.) and to reshape it, to show them another way to
interpret their experience, one with the conflicts removed.
And then to let them extrapolate, because now they will
extrapolate from their reshaped experience and not from the oldtactics.
Overcoming the obstaclesOvercoming the obstacles
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50Copyright Dr EM Goldratt & Avraham Y. Goldratt Institute, 2000
Overcoming the obstaclesOvercoming the obstacles
The first four daysThe first four days
Gain a deep understanding of all the major cause and
effect relationships governing the organization. Expose the prevailing erroneous assumptions.
Become familiar with the common sense solutions
stemming from an holistic approach.
All of top management together. Remember, you judge your
peers according to your years of experience with them.Together, each sees how the other is changing.
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51Copyright Dr EM Goldratt & Avraham Y. Goldratt Institute, 2000
ObstaclesObstacles
The tendency to jump ahead.
The dominant person.
Lack of discipline in formal logic.
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52Copyright Dr EM Goldratt & Avraham Y. Goldratt Institute, 2000
The consensus processThe consensus process
The second four days
Consensus onConsensus on
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53Copyright Dr EM Goldratt & Avraham Y. Goldratt Institute, 2000
what to change?what to change? Each individual contributes the biggest
undesirable effect that exists in his/her area ofresponsibility.
Each individual presents the conflict diagram(cloud) that causes his/her undesirable effect.
The group reaches the generic conflict.
Consensus onConsensus on
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54Copyright Dr EM Goldratt & Avraham Y. Goldratt Institute, 2000
to what to change?to what to change?
The group exposes the assumptions underlying thegeneric conflict.
The group identifies the direction of the solution.
Each individual applies the direction of thesolution to his/her conflict cloud to generate
specific injections.
The group adds the missing injections.
Consensus onConsensus on
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55Copyright Dr EM Goldratt & Avraham Y. Goldratt Institute, 2000
how to cause the change?how to cause the change? Each individual contributes obstacles that might
block the implementation of the injections. Each individual turns his/hers obstacles into
intermediate objectives. The group builds the road map.
The group translates the road map into animplementation plan.
H d f h ?H t d f h ?
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56Copyright Dr EM Goldratt & Avraham Y. Goldratt Institute, 2000
How to proceed from here?How to proceed from here?
Gather all top management to devise the
strategy, tactic and implementation plan
- the 4 x 4.
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57Copyright Dr EM Goldratt & Avraham Y. Goldratt Institute, 2000
THANK YOUTHANK YOU
Lets discuss what can be done in your
organization.