La loi de Little et le Throughput Accounting - La convergence de la science

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TameFlow
Little’s Law & Throughput Accounting
Where science converge
Theory of ConstraintsLittle’s Law Flow Efficiency Throughput Accounting

Kanban’s background in product development and
maintenance might focus on Lead Time where being
quick to market is important, but many companies
just need more things to be done in less time (rather
than faster) and cheaper, which is where improving
Throughput comes in.
- Kurt Häusler

Time & Time & Time again !

Little’s Law is managed while in Flow Time !

Your Team Kanban Boards are located in Flow Time

Your Flow Efficiency Calculations make sense in Flow Time

Little’s Law – reduce Flow Time or increase Throughput ?
• Little’s Law is stochastic & probabilistic
and models the randomness of both
arrivals (demand) and departures
(delivery). It looks at long term
averages. The main area of application
is to reduce Flow Times.

Little’s Law – reduce Flow Time or increase Throughput ?
• Little’s Law is stochastic & probabilistic
and models the randomness of both
arrivals (demand) and departures
(delivery). It looks at long term
averages. The main area of application
is to reduce Flow Times.
• Theory of Constraints is simple and
deterministic. It is very much about
counting widgets delivered over a
period of time, and finding the limiting
factor - the Constraint - at the
operational level. The main area of
application is to increase Throughput.

Little’s Law
Increase Throughput
Little’s Law
Reduce Flow Time
Little’s Law – Flow Time or Throughput ?
Note: Little’s Law maintain that when Flow Time decreases, then
Throughput increases.
Note: From a Theory of Constraints perspective, Throughput an only
increase when Touch Time is improved.

Little’s Law and Throughput Accounting
Throughput Accounting
Financial Throughput
Little’s Law
Operational Throughput

Throughput Accounting Formula !

Theory of ConstraintsLittle’s Law
Flow Efficiency Throughput Accounting

Herbie – Theory of Constraints and the 5 Focusing Steps !
19
Hi! I’m
Herbie!

Theory of Constraints
Identify the
Constraint
Exploit the
Constraint
Subordinate
everything to
the Constraint
Elevate the
Constraint
Prevent
inertia from
becoming the
Constraint
1
2
3
4
5
How to manage a
Constraint using the
5 focusing steps

Theory of Constraints & 5FS

Theory of Constraints & 5 FS

Identify
weakest link !
Identify the
Constraint
1

Theory of Constraints & Drum Buffer Rope
Come on
Herbieeeeee !!!
Make the best use
of what you have
Exploit the
Constraint
2

Everybody behind
Herbie!
Make decisions based
on the Constraint!
Subordinate
everything to
the Constraint
3
Theory of Constraints & Drum Buffer Rope

Help Herbie move
faster!
Make improvements
at the Constraint !
Elevate the
Constraint
4

Prevent
inertia from
becoming the
Constraint
5
Keep an eye on Bluey and
Greenie as they can be come
the new Constraint !!!!
Every time you make a
decision, do not assume the
Constraint has not moved

Theory of Constraints – The hardest step !
Identify the
Constraint
Exploit the
Constraint
Subordinate
everything to
the Constraint
Elevate the
Constraint
Prevent
inertia from
becoming the
Constraint
1 2 3 4 5

Subordinating to vs Exploiting the Constraint – Dr Youngman
Big Batch Size Small Batch Size

Subordinating to vs Exploiting the Constraint – Dr Youngman
SubordinateExploit
Big Batch Size Small Batch Size

Subordinating to vs Exploiting the Constraint
Thinking Fast Thinking Slow

Thinking Fast Thinking Slow
SubordinateExploit

Idle Busy

ExploitSubordinate
Idle Busy

Working in parallel Working Sequentially

SubordinateExploit
Working in parallel Working Sequentially

Higher Logical Level Lower Logical Level

ExploitSubordinate
Higher Logical Level Lower Logical Level

Don’t stop Start Stop

SubordinateExploit
Don’t stop Start Stop

Schedule No schedule

SubordinateExploit
Schedule No schedule

Where to Focus Improvement Efforts
Constraint
The one thing that prevents us (our entire
organization) from delivering more of
whatever it is we have to deliver


What is the big deal compared to the others ?
TOC is an improvement
model.
It focusses on Herbie !

Constraint Focus & Throughput Accounting!
CMMI Levels …
Note: Maturity level approaches lead you to undertake pharaonic projects that are often very costly. They hit the constraint by sheer luck!

Constraint Focus & Throughput Accounting!
XP
SAFe
Etc ...
NEXUS
SCRUM
@SCALE
LeSS
SCRUM
Note: By not focusing on the constraint, all of these approaches create permanent layers of cost overheads that spiral out of control !

DBR – Drum Buffer Rope Inventory replenishment based on time
Flow management Drum,
Buffer, Rope …
… According to Theory
of Constraints or TOC
(Eliyahu Goldratt)
Beats the
production
pace
Drum
Non-bottlenecks
Y Y Y X Y Y Y
Finished goods
shipment
Non-bottlenecks
Bottleneck
resource
Rope
Controls releases
to production
Buffers
Protect
bottleneck & sales
Protection
Raw
material
Protection

TameFlow Kanban Boards with DBR
DBR Kanban Board Throughput Kanban Board

TameFlow Kanban and CCPM buffers
100 Work Items will take an
average of 34 days to deliver.
The buffer is 17 days
Note: Little Law’s is required to
assess buffer penetration
34 days 17 days

Manage Constraints in the Work Flow,
Work Process and Work Execution

DBR - Manage Work Load & Flow

CCPM - Manage Due Date

We are not quite done with the Theory of Constraints!
Let’s propose a
Flow Efficiency Improvement of 20%

The Business Value of Flow Efficiency
Work Faster Deliver Sooner
Touch Time – 5%
Wait Time – 95%
Reduce Touch Time by 20% Reduce Wait Time by 20%
Flow Time

A counter intuitive proposition – Work Faster or Deliver earlier !
Flow Time Baseline – 100%

Is it worth it?
Reduce Touch Time
& Increase Capacity
Reduce Wait Time
& Postpone Commitment

Touch Time vs Wait Time
• Where do improvement models like ADKAR, CMMI & KMM want you to impact first ?
• Touch Time or Wait Time ?
CMMI Levels …

Focus of these Agile Approaches – Touch Time Or Wait Time ?
XP
SAFe
Etc ...
NEXUS
SCRUM
@SCALE
LeSS
SCRUM

Little’s Law says Touch Time is King !

But Reduction in Wait Time are superior!

We also know that Flow time = Wait time + Touch time

Let’s do one more transformation
throughput =
work-in-process (WIP)
wait time + touch time

Wicked Question on Little’s Law !
According to Little’s Law, when you reduce WIP, Flow Time goes down!
Which component of Flow Time goes down ? Touch Time, Wait Time or both ?
Note: Eli Schragenheim (Theory of Constraints) and Daniel Vacanti (Kanban) see the reality from different perspective!

LITTLE’S LAW AS A TRIANGLE - DELIVERY LINE INSTEAD OF DEMAND LINE
Flow Time
WIP
TP = WIP / FT
TP
A Deterministic Analysis of Little’s Law

Wait Time
Wait time: when the work is
waiting to be worked on.
We can reduce Wait Time by
postponing commitment, reducing
WIP something that Kanban
supports.

When Wait Time is reduced
FT
TP
WIP

FT
TP
WIP
WT--
1) If Wait Time is
reduced by this
amount

FT
TP
WIP
WT--
1) If Wait Time is
reduced by this
amount
2) then WIP is
reduced by this
amount

FT
TP
WIP
WT--
1) If Wait Time is
reduced by this
amount
2) then WIP is
reduced by this
amount
3) and TP
remains the
same.

(“deliver sooner”), a
corresponding amount of WIP is
left out of the system, and
Throughput remains the same
since no impact has been done
on Touch Time. We experience a
decrease in Flow Time.

Touch Time
Touch time: When work is being
performed (“touched”). Also
represents the way we work.
We can improve Touch Time by
increasing Capacity to work faster.
This avenue requires increase in
Investments and/or Operating
Expenses

When Touch Time is reduced
FT
WIP
TP

FT
WIP
TP
TT--
1) If Touch Time is
reduced by this
amount

FT
WIP
TP
TT--
1) If Touch Time is
reduced by this
amount
2) and WIP
remains the
same

FT
WIP
TP
TT--
1) If Touch Time is
reduced by this
amount
2) and WIP
remains the
same
3) then TP
increases by this
amount

(“work faster”), then the
same amount of WIP is
processed in less time, hence
Throughput increases. We
experience, again, a decrease
in Flow Time.

What is happening here !
Identify the
constraint
Exploit the
constraint
Subordinate
everything to
the constraint
Elevate the
constraint
Prevent
inertia from
becoming the
constraint
1
2
3
4
5

What is happening here ?
Identify the
constraint
Exploit the
constraint
Subordinate
everything to
the constraint
Elevate the
constraint
Prevent
inertia from
becoming the
constraint
1
2
3
4
5

HIGH WIP hides the constraint !!!!

Lowering WIP reveals the constraint by killing multitasking !

We are exploiting the constraint without having identified it!
COME ON HERBIEEEEEE !!!
Make the best use of what
you have
We know when all unnecessary wait time is
gone when the constraint is working at full
capacity. At the same time, we have identified
the constraint!
All improvement initiatives should focus on the
constraint.

Impact on Throughput …

Effects on capacity of reducing wait time & removing multi tasking
WIP
TP
Indirect impact on Touch Time
component of reducing Wait Time:
Capacity wasted on Multitasking
is recovered.
Potential
Touch Time
TT

WIP
TP
is recovered.
Potential
Touch Time
TT
Effective Touch
Time
Wait Time wasted in
Multitasking

WIP
TP
is recovered.
Potential
Touch Time
TT
Effective Touch
Time
Wait Time wasted in
Multitasking
Touch Time
reclaimed from Wait
Time

TP
is recovered.
Effective Touch
Time
Wait Time wasted in
MultitaskingPotential
Touch Time
Touch Time
reclaimed from Wait
Time
TT

WIP
TP
is recovered.
Additional WIP
reclaimed
Effective Touch
Time
Wait Time wasted in
MultitaskingPotential
Touch Time
Touch Time
reclaimed from Wait
Time
TT

THE INDIRECT CONNECTION BETWEEN WAIT TIME & TOUCH TIME
• According to Little’s Law, as the Flow Time at the denominator decreases, Throughput will increase. The
contradiction here is that - from a Theory of Constraints perspective - a system simply cannot deliver any
more Throughput than its Constraint.

• Since we have not reduced Touch Time, the Constraint cannot have increased its Capacity in any way.

• Reducing Wait Time does not directly affect Throughput in any way according to ToC.

• Reducing Wait Time does not directly affect Throughput in any way according to ToC.
• Reducing Wait Time will indirectly affect Touch Time by reducing multi tasking and hence will indirectly
increase Throughput.

Putting it all together now !
- Anything that allows the constraint to work
faster is a form of ‘exploitation’ !!!!

- Reducing Wait Time impacts WIP which
impacts multi tasking which impacts Flow
Time which impacts Throughput without
changing Touch Time

changing Touch Time
- The constraint hence wastes less capacity

changing Touch Time
- The capacity of the constraint remains the
same since Touch Time has not been acted
upon directly and no improvements on the
system took place

changing Touch Time
- The capacity of the constraint remains the
same since Touch Time has not been acted
upon directly and no improvements on the
system took place
- This occurs with no additional Operating
Expenses or Investments – Throughput
Accounting

Throughput Accounting (TA): “A management accounting method
that is based on the belief that because every system has a
Constraint which limits global performance, the most effective way to
evaluate the impact that any proposed action will have on the system
as a whole is to look at the expected changes in the global measures
of Throughput, Investments and Operating Expenses.”
(Source: TOICO Dictionary, Sullivan, 2012).

Throughput Accounting

Throughput Accounting Components
With only 3 variables to understand -
TH, OE et I – Operational
Management becomes child’s play.
Both erudites and experts are
playing on a leveled field and
motivation is aligned for all system
participants. Only 3 questions need
to be answered in this specific order
to forge ahead :
Will my action increase Throughput (TH)? (Sales
minus Totally Variable Cost – TVC)

to forge ahead :
Will my action diminish Investment or
Inventory(I)? (All the money in the system)

to forge ahead :
Will my action diminish Investment or
Inventory(I)? (All the money in the system)
Will my action diminish Operating Expenses
(OE)? (Money required to turn Inventory into
Throughput)

Investment
Category Included
Cash Yes
Cash Equivalents Yes
Accounts Receivables Yes
All inventories at TVC (Including Freight In) Yes
Medium-term assets Yes
Fixed Assets Yes, but use judgment
Marketable Securities Yes, but ensure losses have been provided
Long-term Investments Yes, but use judment
Goodwill No
Note: Investment is all the money in the system.

Costs – TVC or not TVC
A totally variable cost is variable only
if it changes with production levels!
A totally cost is variable only if
it has a correlation
coefficient of r=1:1 with sales.
All other expenses are
Operational Expenses

Culture, alignment and goal congruence
Totally Variable Costs
Net Profit
Operating Expenses
Throughout
Sales
Throughout Accounting Components
Customer Value
Supplier Value
Investor Value
Employee Value

Archimedean Levers in TA – (Caspari & Caspari)

Expansion vs Growth – How to get 5 times sales !!!
Expansion/
Production
Growth/
Productivity

Strategic Intent – Product Proliferation
Production Increase (Expansion) – Linear Expansion
Essentially any increase in production is a pro rata increase in both inputs (operating expense),
and outputs (Throughput).
Operating
expense
Throughput
Operating
expense
Throughput

Strategic Intent – Product Proliferation
Productivity Increase (Growth) – Exponential Growth by Decoupling TH from OE
By following the first 3 steps of the 5FS to the letter, we can have non linear growth by decoupling TH from OE!
Operating
expense
Throughput
Operating
expense
Throughput

Expansion vs Growth – Decoupling TH from OE
Expansion/
Production
Growth/
Productivity

Which ONE STEP is akin to Expansion/Production ?
Identify the
Constraint
Exploit the
Constraint
Subordinate
everything to
the Constraint
Elevate the
Constraint
Prevent
inertia from
becoming the
Constraint
1 2 3 4 5
Expansion/
Production

Which ONE STEP is akin to Expansion/Production ?
Identify the
Constraint
Exploit the
Constraint
Subordinate
everything to
the Constraint
Elevate the
Constraint
Prevent
inertia from
becoming the
Constraint
1 2 3 4 5
Growth/
Productivity

Expansion vs Growth – How to get 5 times sales with TOC !!!
Exploit the
Constraint
2
Elevate the
Constraint
4

Expansion vs Growth – How to get 5 times sales with TOC !!!
Exploiting The Constraint
• No impact on Investments
• No impact on Operating
Expenses
Exploit the
Constraint
2
Elevate the
Constraint
4

The Throughput Accounting Zero metrics !!!!!
Throughput-Dollars-Day
• The cost of delivering late
• Delivery performance metric. Should equal zero!
• The bigger the Throughput of an order, the faster
the growth of the metric
• It is computed by assigning to every late order a
value equal to its throughput multiplied by the
number of days the order is late

The Throughput Accounting Zero metrics !!!!
Inventory-Dollars-Day
• The cost of finishing early
• Measure of excess inventories
• Indicates the degree of seriousness of excess
inventories
• Represented by the amount of money invested in
inventory multiplied by the number of days early
the order is completed.

The Throughput Accounting Zero ratios – The tools !
DBR Scheduling & CCPM
• Throughput Accounting is also closely related to the term
Drum-Buffer-Rope (DBR), a scheduling method which is
also based on Goldratt’s Theory of Constraints
• It focuses on avoiding late orders and developing
measurements that correlate to delays, known as
throughput dollar days
• CCPM buffers helps you manage SLAs due date
performanceproactively
• Buffers utilise time and inventory to protect capacity-
constrained resources, Throughput, WIP and Due Date
Performance
Note: Throughput-dollars-day and Inventory-dollars-day connect Operational excellence (Little’s Law) with Financial results (Throughput Accounting

The Throughput Accounting Zero ratios !!!!!
Leading Signals to Protect WIP
• Buffer management is a form of management by
exception that is nowhere to be found in Agile
• It provides for leading indicator of risk
materialisation
• Comes at little to no cost
• Treating WIP as a leading indicator of Flow Time is
very obvious and not enough!
• TameFlow Kanban rather have advanced signals of
risk materialisation to ‘protect’ optimal WIP

Archimedean lever – TH, OE & 5 FS

DBR boards protects WIP

Throughput board – Upstream & Downstream

We need to protect WIP & Throughput !!

The zero ratios in dollars-per-day

THE END
HERBIE IS YOUR FRIEND!

La loi de Little et le Throughput Accounting - La convergence de la science

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