How to better exploit (not waste) a company’s scarcest resource Management Attention

1. How to better exploit (not waste) a company’s scarcest resource Management Attention Dr. Alan Barnard CEO, Goldratt Research Labs 23rd October, 2013

2. IMPROVEMENT CHALLENGES What makes improving productivity so difficult… Challenge 1: Achieving Growth AND Stability and Harmony Stakeholder’s Conflict Growth Satisfy Growth in Demand Disharmony Be Successful Maintain Stability / Harmony GOAL PERFORMANCE Pressure to Change Constraint Stability Harmony Pressure to Not Change What Next? Decay Past Now Future TACTICS STRATEGIES TIME Challenge 2: Ensuring every Local Change = System Improvement   WHY? How can Goldratt’s Theory of Constraints help overcome these challenges? © Goldratt Research Labs, 2013 Slide 2

3. Presentation outline 1. What is Theory of Constraints (TOC)? • TOC’s Five Focusing Steps (5FS) • TOC’s Throughput Accounting (TA) 2. Using TOC to measure and improve Management Productivity 3. Using TOC to measure and improve Operational Productivity 4. Case Studies 5. Q&A © Goldratt Research Labs, 2013 Slide 3

4. Part 1 What is Theory of Constraints? Knowing What to Change…and What NOT © Goldratt Research Labs, 2013 Slide 4

5. What is Theory of Constraints? Dr. Eli Goldratt (1947-2011) said that we can summarize Theory of Constraints with a single word... FOCUS However, FOCUS do not only mean knowing what we should DO, but as importantly, what we should NOT DO… because… Focusing on everything is synonymous with not focusing on anything. 1984 1986 1990 1994 1997 1999 2000 © Goldratt Research Labs, 2013 2009 2010 Slide 5 2010

6. WHAT IS THEORY OF CONSTRAINTS? Knowing “WHAT TO CHANGE” - The 5 Focusing Steps of TOC… “A chain is only as strong as its weakest link” Step 0: Agree on the System GOAL Step 1: IDENTIFY the System Constraint (WEAKEST LINK) Step 2: Decide how to better EXPLOIT (not Waste) the System Constraint Step 3: SUBORDINATE everything to the above decision (CHANGE only those RULES – policies & measurements in conflict with decision on how to better exploit/not waste system constraint) Step 4: ELEVATE the Constraint (get more of it) Step 5: WARNING!!!! If in a previous step the constraint has moved, GO BACK to Step 1, - do not let inertia become the constraint. (However, try not to reach Step 5 else you have to change rules) Supply Step 1 IDENTIFY the Constraint 15/hr 12/hr 12/hr 10/hr Step 3 Step 2 SUBORDINATE Decide How to EXPLOIT the constraint everything to this decision GOAL  EXPLOIT potential for more Goal Units PROTECT current level of Constraint Exploitation ↓ Overproduction / Multiitasking ↓ Rework ↓ Starvation/Blockage ↓ Setups/Downtime Current level of Constraint Exploitation + VE + VE Change - VE GOAL  New Constraint Exploitation Rules Demand Step 4 Elevate the Constraint GOAL  + VE Protective Capacity New level of Constraint Exploitation + VE Change NOT - VE Elevate NOT - VE 13/hr - VE GOAL  New Constraint Elevation Rules Step 5 If a constraint has been broken, Go back to Step 1 © Goldratt Research Labs, 2013 Slide 6

7. GOLDRATT’S DICE GAME Why is the Throughput of systems well below their bottleneck capacity? The Dice Game – Insights A B C D Expected = 70 upm Actual = 35 upm (around 50%) E Min 1 U/day Min 1 U/day Min 1 U/day Min 1 U/day Min 1 U/day Min ? U/hr Avg 3.5 U/day Avg 3.5 U/day Avg 3.5 U/day Avg 3.5 U/day Avg 3.5 U/day Avg ? U/hr Max 6 U/day Max 6 U/day Max 6 U/day Max 6 U/day Max 6 U/day Max ? U/hr Important Lessons Learned: 1. System Output is normally significantly below Output of the Bottleneck 2. “Balancing Capacities” (to be efficient) creates a chaotic system – i.e. its impossible to reliably predict performance and very difficult to know where to focus… 3. We need to balance the FLOW …not Capacities…which requires Buffers + Protective Capacity in non-bottleneck processes…but will this not cost too much / take too long? © Goldratt Research Labs, 2013 Slide 7

8. WHAT IS THEORY OF CONSTRAINTS? Why is the Throughput of systems well below their bottleneck capacity? The Dice Game – Insights A B C D Expected = 60 upm Actual = 58 upm (around 97%) E Min 1 U/day Min 1 U/day Min 1 U/day Min 1 U/day Min 1 U/day Min ? U/hr Avg 3.5 U/day Avg 3.5 U/day Avg 3 U/day Avg 3.5 U/day Avg 3.5 U/day Avg ? U/hr Max 6 U/day Max 6 U/day Max 5 U/day Max 6 U/day Max 6 U/day Max ? U/hr Important Lessons Learned: 1. By slowing down the Bottleneck, we can create Protective Capacity in non-bottlenecks to reduce starvation and blockage of the Bottleneck. 2. If the Starvation and Blockage buffers work 100% effectively, the system performance will be equal to the bottleneck performance (and be very predictable). 3. Starvation and Blockage buffers should be dynamically adjusted based on actual supply reliability and demand variation (Too much Red = Too small  Increase ; Too little Red = Too large Reduce) . © Goldratt Research Labs, 2013 Slide 8

9. © Goldratt Research Labs, 2013 Slide 9

10. WHAT IS THEORY OF CONSTRAINTS? Quantifying the impact of CHANGES – TOC Throughput Accounting To determine the likely GLOBAL impact of any LOCAL Change, Estimate the LOW, LIKELY and HIGH impact of each Change on ΔT, OE and I Sales Revenue (SR) Now US$ % of SR $ 10,000 100% Variable Cost (VC) $ 5,000 50% Throughput (T) Operating Expenses (OE) $ $ 5,000 4,500 50% 45% 0.0% 0.0% $ 5,000 $ 4,500 50% 45% Net Profit (NP) $ 500 5% 0.0% $ 5% Investment (I) $ 2,500 25% 0% Return on Investment (NP/I) % Change in Qty % Change in Price 0.0% 0.0% Future US$ % of SR $10,000 100% 0.0% 0.0% $ 5,000 50% 20% 0% 500 $ 2,500 25% 6 20% Throughput (T) The rate at which the system generates money through Sales or T = Sales Revenue (SR) – Variable Cost (VC) Operating Expenses (OE) The rate at which the system spends money to generate Throughput (or other goal units) i.e. OE = All non-variable costs (also called Fixed Costs) Investment (I) All the money tied up in the system (the money invested to generate Throughput). © Goldratt Research Labs, 2013 Slide 10

11. Part 2 Using TOC to improve Management Productivity What is the bottleneck to improving Management Productivity? © Goldratt Research Labs, 2013 Slide 11

12. WHAT IS THEORY OF CONSTRAINTS? Applying the 5 Focusing Steps to Management Productivity… What is the Constraint or Bottleneck to improving MANAGEMENT Productivity… …needed to achieve more GROWTH, STABILITY and HARMONY? The Bottleneck is always at the TOP of the bottle… © Goldratt Research Labs, 2013 Slide 12

13. Applying TOC’s 5 Focusing Steps to Improving and Managing Organizations Step 1: Identify the System Constraint …to Achieving GROWTH, STABILITY AND HARMONY (within Organizations) Management Information Demand vs. Supply Surplus Required Information to make better faster decisions Available data and Information Management Attention Demand MANY Things that demand OR could benefit from our Attention vs. Supply Shortage Available Attention Management Attention = System Constraint © Goldratt Research Labs, 2013 Slide 13

14. Applying TOC’s 5 Focusing Steps to Improving Management Productivity Step 2: Decide how to EXPLOIT the System Constraint … Identify the things that WASTE our Management Attention… Better Exploiting Management Attention  Supply vs.  Demand HOW? … STOP … REDUCE FOCUS on FEW Things that could really benefit from our limited Attention…and DON’T MULTITASK 3. Repeating Mistakes – not Learning from Experience INCREASE Error of Detection & Correction 2. NOT DOING what we should Error of Omission 1. DOING what we should not Error of Commission Productive use of our Attention How much of your limited MANAGEMENT ATTENTION do you think you WASTE due to mistakes 1, 2 and 3? © Goldratt Research Labs, 2013 Slide 14

15. Quick Self-Assessment Check Make a list of the things that cause you to WASTE your limited attention…. DOING WHAT YOU SHOULD NOT NOT DOING WHAT YOU SHOULD © Goldratt Research Labs, 2013 REPEATING AVOIDABLE MISTAKES (REWORK) Slide 15

16. Why do we say “PAY” attention…? WARNING or pay the price There is a COST and a BENEFIT of PAYING Attention 1. COST – we GIVE UP the benefit of focusing our attention on something or someone else… 2. BENEFIT – we GAIN the benefit of focusing our attention on this thing or this person… What is a common strategy to maximize BENEFIT and minimize COST… We Multitask …we try to give equal attention to the MANY things that demand or can benefit from our attention…….but don’t realize the high PRICE we pay.… © Goldratt Research Labs, 2013 Slide 16

17. Checking Sufficiency… So, are there any other ways that we waste our limited Attention? For example… For the cases where we are DOING WHAT WE SHOULD, is “Multi-tasking” the best way to allocate our limited attention? © Goldratt Research Labs, 2013 Slide 17

18. Dr. Eli Goldratt’s real Legacy Standing on the shoulders of Giants “Finally, and most importantly, I wanted to show that we can all be outstanding scientists. The secret of being a good scientist, I believe, lies not in our brain power. We have enough. We simply need to look at reality and think logically and precisely about what we see.” Dr. Eliyahu M. Goldratt 1948 - 2011 Dr. Goldratt, the creator of Theory of Constraints, said the two key abilities to “being an outstanding scientist” are simply: (STEP1) Have the courage to face inconsistencies between what we (expect to) see and the way things are… and then (STEP 2) Have the wisdom to challenge basic assumption(s) to resolve these inconsistencies. Research Questions • What are the inconsistency regarding how we invest our limited attention to get work done? • What “basic assumption(s)” can and should be challenged to resolve this inconsistency….and how to do this especially if challenging the assumption might be counter-intuitive? © Goldratt Research Labs, 2013 Slide 18

19. Management Productivity Challenge Facing an inconsistency and challenging basic assumption(s) Research Problem Inconsistency: Despite major advances in technology and know-how most change initiatives are still completed late, over-budget and/or under-scope. Research Question Can changing the RULE we use in do work/ project tasks have a significant impact on the lead time, costs and quality (or not)? Research Method • You are giving three projects to complete for your organization. • These three projects together make up a Program but each project is for a different “Customer” and each of these customers want you to finish their project as soon as possible, want you to give them highest priority but is also asking for a “reliable estimate of completion”. • Which RULE should you use to do these projects: RULE 1: Work on all of them at the same time (Multi-task), or RULE 2: Do them one by one…(No Multi-tasking)? © Goldratt Research Labs, 2013 Slide 19

20. Round #1 Complete Tasks by Multi-tasking … A B C D E F G H I J K L M N O P Q R S T 59 sec 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 58 sec 88 – 178 sec 50-200% Longer Δ Ο ☐ Δ Ο ☐ Δ Ο ☐ Δ Ο ☐ Δ Ο ☐ Δ Ο ☐ Δ Ο 60 sec 89 – 179 sec 90 – 180 sec 50-200% longer 50 - 200% longer © Goldratt Research Labs, 2013 Slide 20

21. Round #2 Complete Tasks without Multi-tasking 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 20 sec A B C D E F G H I J K L M N O P Q R S T 40 sec 10 - 20sec Early / On time Δ Ο ☐ Δ Ο ☐ Δ Ο ☐ Δ Ο ☐ Δ Ο ☐ Δ Ο ☐ Δ Ο 60 sec 20 - 40sec 30 - 60 sec Early / On time Early / On time © Goldratt Research Labs, 2013 Slide 21

22. UNDERSTANDING WHY MULTI-TASKING IS SO BAD… Multi-tasking delays project flow …and distracts our attention SCENARIO #1: No Capacity Constraints Project X Project Y Project Z 0 10 20 BASIC ASSUMPTION CHALLENGED “The earlier we start… the earlier we finish” / Its unfair to prioritize VS. “The later we start... the earlier we finish” / Its unfair not to prioritize SCENARIO #2: PLAN - Multi-tasking Project X Project Y Project Z End Earlier? Start Earlier 10 0 20 30 40 50 60 Finish Later 70 80 SCENARIO #2: ACTUAL - Multi-tasking with Distraction Delays Project X LATE FINISH! Project Y Project Z 0 10 20 30 40 50 60 70 80 SCENARIO #3: PLAN - No Multitasking Project X Project Y Project Z Start Later 0 10 Finish Earlier 20 30 40 50 60 70 80 SCENARIO #3: ACTUAL - No Multitasking Can safely reduce Project buffer by 50% Project X Project Y Project Z EARLY FINISH 0 10 20 30 40 50 60 70 80 90

23. ANALYZING POOR PROJECT PERFORMANCE Is it the Starting Conditions…or the Rules WE use… Our Challenge Difficulty to Improve & sustain higher Project Performance Other Consequences… Delays and Mistakes in prediction, detection & correction People at all levels are stressed and overworked Increased Project Work + Wait Time Main Cause… Real Cause…  Complexity, Uncertainty and Resource Constraints Really? Lets check this assumption with Multitasking Game Multitasking at all levels “Local Optima” Rules… Too High WIP Too Detailed Schedules + Not Full Kit + Local Safety Pipelining Lower WIP + TOC Solution Ensure Full Kit CCPM Rule 1 Local Priorities + Measurements Execution Planning Schedules with Aggregated Global Priorities + Tasks + Buffers Buffer Management CCPM Rule 2 CCPM Rule 3 Simple …but not easy… © Goldratt Research Labs, 2013 Slide 23

24. Part 3 Using TOC to improve Operational Productivity Is TOC the same as Debottlenecking? © Goldratt Research Labs, 2013 Slide 24

25. STANDING ON THE SHOULDERS OF GIANTS THE Four Concepts of Flow 1. Improving Flow (specifically reducing Flow Time) is should be the #1 objective for Operations/Supply Chains 2. To reduce Flow Time, we need a Practical Mechanism to Stop Overproduction and maintain right priority – – – Ford: Use Space and Sequence of Launch Ohno: Use Kanbans and Colors to show emergency Kanbans Goldratt: Use Time (Buffers) and Buffer Penetration to ensure same priority everywhere and to focus management attention 3. Abolish all Local Efficiencies / Local Optima 4. Put in place a Focusing Mechanism to continuously improve and re-balance Flow (e.g. Do Pareto on what is causing delays in flow?) Yes, but…. How do we know that FLOWS are not balanced… © Goldratt Research Labs, 2013 Slide 25

26. RISK: DEMAND GROWTH / INSUFFICENT CAPACITY Growth in backlog vs. Decay in Reliability of Supply... Arrivals Departures Resource Linear growth until reaching “Turning the Corner” Point at >80% utilization 0% Resource Utilization 80% Reliability in meeting demand Queue Length/Supply Lead time Growth in Queues & Decay in Reliability vs. Growth in Resource Utilization 100% How can we turn this insight into a GOOD MEASUREMENT SYSTEM…? © Goldratt Research Labs, 2013 Slide 26

27. Balancing FLOWS … not balancing CAPACITY Using Cumulative Flow Diagrams as Early Warnings of Scarcity Cumulative Flow Diagrams Higher WIP WIP Supply Lead Time Time Longer Supply LT Time Higher WIP Longer Supply LT Time LITTLE’s LAW Work-in-Process = Flow Rate x Flow Time WIPavg = FRavg x FTavg If either arrivals (demand) increase or departures (supply) reduce, it causes Supply Lead Time and WIP to grow. • Growth will be exponential if demand grows faster than supply. • Growth will be permanent without sufficient catch-up (protective) capacity… © Goldratt Research Labs, 2013 Slide 27

28. CRITERIA FOR DESIGNING A GOOD MEASUREMENT SYSTEM GOOD MEASUREMENT SYSTEM 1. Accurately measures the STATUS (Ok or not?) and TREND (Improving or Not?)  Know WHEN to act…and When NOT  Mistakes  Type 1 - Reporting we are OK when we are not…and  Type 2 - Reporting we are not OK when we are. 2. Accurately predicts likely CAUSE(S) of the status (i.e. Demand or Supply problem?)  Know WHERE to act …and Where NOT  Mistakes  Type 1 – Reporting something as a major cause when it is not…and  Type 2 – Not Reporting something as a major cause when it was 3. Drives desired / discourages undesired behaviors (what is best for the system)  Know HOW to act…and HOW not  Mistakes  Type 1 - Encouraging an undesirable behaviour (local optima)…and  Type 2 – Not encouraging a desired behavior How well does your company’s measurement system meet these criteria? © Goldratt Research Labs, 2013 Slide 28

29. IMPORTANT GLOBAL MEASUREMENTS Measuring Productivity, Flow and Timeliness GOOD MEASUREMENTS CUMULATIVE FLOW Arrivals (Demand) Cumulative Flow • Cumulative Flow for System and Subsystems • Operational Productivity = $T/$OE or (for Service Depts) = QT/OE • Capital Productivity = $T/$I • Quality can be measured as: % Coverage, % OnTime or % InSpec WIP Longer Flow Time Throughput (Supply) Flow Time • % Protective Capacity Available on CCRs (Capacity Constraint Resource) Time in Days PRODUCTIVITY QUALITY THROUGHPUT 75% of On-time / Coverage Productivity Operational Productivity = $T/$OE or QT/OE 25% Late / Not served 20% 15% Capital Productivity = $T/$I 15% 10% 10% 5% Time in Days 0-5d 5-10d 10-15d © Goldratt Research Labs, 2013 15-20d 20-25d 25-30d 30-35d 35-40d > 40d Slide 29

30. Part 4 Case Study How can we apply the 4 Concepts of flow and insights on the damaging consequences of Multi-tasking to improve Productivity of Managers at all levels? © Goldratt Research Labs, 2013 Slide 30

31. Case Study: Focusing on improving Flow & stopping multi-tasking Every manager can improve the productivity of its department if they can find ways to reduce flow delays and stop multi-tasking The case studies shared will show the impact of improving flow and stopping multi-tasking in different departments within two different companies. Company 1 – Applying it within Sales Department This case study will reveal how the company applied the 4 Concepts to significantly reduce the Average Sales Cycle Time and increase the success rate of their sales Company 2 – Applying it within IT Department This case study will reveal how the company applied the 4 Concepts to significantly improve due date performance and reduce the average Lead time of IT Projects. © Goldratt Research Labs, 2013 Slide 31

32. CASE STUDY 1 – LESS IS MORE Applying four FLOW concepts to Sales Department 1. IMPROVING FLOW IS #1 - Faster Flow of “good” (higher Throughput margin and higher probability of closing deal) sales opportunities through the sales channel should be the #1 objective because any flow delays cause longer sales cycles, lower hit rate & margins. 2. MECHANISM TO PREVENT OVERPRODUCTION & SYNCHRONIZE PRIORITIES - “Choke the release” by ensuring whole Sales Teams focus on “well qualified sales opportunities”– Less is More because too High WIP causes Multi-tasking that cause bottlenecks, longer sales cycles and lower hit rate …so more pressure to go get even more(vicious cycle) 3. ABOLISH LOCAL OPTIMA – Abolish any incentives or measurements that drive behavior that is in conflict with better flow (e.g. number of opportunities in pipeline) 4. FOCUSING MECHANISM – Identify and eliminate the most significant sources of low hit ratio and or long sales cycles to focus continuous improvement efforts - check for build-up of WIP in sales process steps and record and analyze reasons for delay.  30%  47%  263% Reference: Chapter 21 of Theory of Constraints Handbook, Less is more: Applying Flow concepts to Sales by Mauricio Herman and Rami Goldratt © Goldratt Research Labs, 2013 Slide 32

33. CASE STUDY 2 – LESS IS MORE Applying four FLOW concepts to IT Department 1. IMPROVING FLOW IS #1 - Faster Flow of “good” (higher ROI) projects through the Project Office should be the #1 objective because any flow delays cause longer lead times, lower quality and throughput of projects, higher cost & risk and lower ROI 2. MECHANISM TO PREVENT MULTITASKING & SYNCHRONIZE PRIORITIES - “Choke the release” by pipelining projects (prioritize, freeze and stop) as starting projects too soon causes multi-tasking that causes longer wait and work time (longer flow time). 3. ABOLISH LOCAL OPTIMA – Abolish any incentives or measurements that drive behavior that is in conflict with better flow (e.g. no. of projects in pipeline, reporting % complete etc.) 4. FOCUSING MECHANISM – Identify and eliminate the most significant sources of delays on projects and resource bottlenecks to focus continuous improvement efforts check for build-up of WIP at TASK Manager Level (for resource constraints) and record and analyze reasons for most penetrating delays. © Goldratt Research Labs, 2013 Slide 33

34. CLOSING REMARKS Achieving FLOW in Personal productivity… STOP Multi-tasking – get into FLOW © Goldratt Research Labs, 2013 Slide 34

35. Key Take-Aways Management Attention Available Repeating mistakes Doing right things wrong Wasted Not doing the RIGHT Time/Attention things Actual Utilization Doing the WRONG things Productive Time (Adding Value) Not doing the Wrong Things (STOP/NOT START) Doing the Right Things Doing the right things right (ACCELERATE/START) (FOCUS/DONT MULTI-TASK) Learn from Experience (FAST FEEDBACK) REMEMBER….THE BOTTLENECK IS ALWAYS AT THE TOP OF THE BOTTLE © Goldratt Research Labs, 2013 Slide 35

36. THANK YOU FOR YOUR ATTENTION… ….I KNOW IT IS YOUR SCARCEST RESOURCE  GOOD LUCK! © Goldratt Research Labs, 2013 Slide 36

38. ABOUT THE PRESENTERS Dr. Alan Barnard (PhD) Dr. Alan Barnard is one of the leading experts in the world in Theory of Constraints (TOC) frequently worked with Dr. Eli Goldratt, creator of Theory of Constraints on large and complex projects around the world. He is the CEO of Goldratt Research Labs (USA), Chairman of Realization Africa (RSA), African Phosphates (RSA) and The Odyssey Institute (USA). Alan is also a board member of TOCICO and the Dr. Eliyahu M. Goldratt Foundation. In 2009, Alan was awarded a PhD in Management of Technology & Innovation, from the Da Vinci Institute in 2009 with a thesis titled “How to identify and unlock inherent potential within organizations (private & public) and individuals?”. Alan is also the author of 2 chapters in the McGraw Hill published Theory of Constraints Handbook. Alan is a past-President of SAPICS (2000 to 2002) and past-President of TOCICO (2003 to 2005) and serve on the judging panels of the Logistics Achiever Awards and Technology Top 100. He has worked with global companies such as ABB, BHP, Cisco, SAP, Random House Publishing, Tata in the Private sector and also with UN DP, UN WFP and InWent in the public sector on applying for example Theory of Constraints to City Councils in Developing Countries in the Public Sector to help them identify and unlock inherent potential to achieve more with the same resources in less time. © Goldratt Research Labs, 2013

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