Alex’s Bearington plant is losing money.
He is given 3 months ultimatum to either make plant make money or plant will be closed.
He implements a few concepts suggested by Jonah.
He, with his team consisting of Stacey, Lou, Bob and Ralph improve the processes and
culture at the plant.
As a result, Alex gets promoted as Divisional Manager.
Rate at which system
All the money system has
invested in purchasing
things it intends to sell
All the money system
spends to convert
inventory to throughput
Any resource whose
capacity is equal to or
less than the demand
placed upon it
Repeat the process
of the Constraint
Exploit the Constraint
Synchronize to the
The throughput of
any system is
determined by the
Hence to increase
the throughput one
must focus on
Every machine was used with 100% capacity which in turn increased
Inventories due to capacity mismatch between adjacent machines/resources
Inventory was high.
Inventory turnover period increase.
Cash conversion cycle increase.
Low Cash Inflow.
Capacity is less than or equal to the demand.
Bottlenecks decided throughput of the system as a whole.
Bottleneck capacity could not be increased due to Capital Expenditure
Robots were used, but production didn’t increase.
Labour wasn’t laid off.
Cost of materials didn’t go down.
So, there was no tangible effect of using Robots.
Most of the orders were getting late.
Expediting was a norm in the plants.
BASIC MODELS OF MANUFACTURING
The four basic models of manufacturing, shown as follows:
Where X represents a Bottleneck and Y represents a Non-Bottleneck
DERIVE CAUSE OF THE
• To make money by increasing net profit, while
simultaneously increasing ROI and Cash Flow.
• Plant was making losses (Bill Peach’s revelation)
• Division was also making losses.
• Losses were not quantified though
• Less throughput due to bottleneck constraints
Prioritized material coming to bottlenecks over other material.
Bottlenecks utilized to 100 % of time
Quality Check shifted before the bottleneck to let bottleneck process
Consume the inventory to decrease levels of inventory and free money
locked up in inventory
Production Planning and Material Sourcing Planning to avoid Interactive
Use of alternate resources to increase capacity of Bottleneck
REPEAT THE STEPS UNTIL GOALS ARE MET
APPRAISAL OF CONTROL
Information gathered from shop floor and list of backlog
Ralph created system to efficiently predict time to engineer a
Materials were sourced as per the demand and capacity
constraint Resources to efficiently use bottlenecks
APPRAISAL OF ORGANIZATION STRUCTURE
Production Planning and Control
Capacity Utilization of Bottlenecks
Production Inspection (QC moved to
APPRAISAL OF ORGANIZATION STRUCTURE
New Marketing Campaign for 4 week delivery
Heightened brand image
Long term / Yearly contracts with French
Increase in Orders:
• New customer Burnside
• Contract made with
French customer for 1
• Revenue per employee
• Culture change from cost
world to throughput
• Production planning
• Material sourcing
• 4 week delivery
• In Bearington plant, expediting was a norm.
• Efficiency of the plant was down.
• Plant was making losses.
• Alex and team identified system constraints i.e. the bottlenecks.
• Gave high priority to parts that were to be fed to Bottlenecks over parts that were not going to be processed
• Bottlenecks time was not lost and it increased throughput.
• Red tag and green tag priority system caused starvation of resources for green tagged parts.
• Increased QUEUE TIME for green tagged parts & increased WAIT TIME for Red Tagged parts.
• By analyzing the capacity of bottlenecks, the amount of production of green tagged parts could be
• This helped in material sourcing planning and predicting the Out Time of the order.
HOW DO THE MEASURES RELATE TO DECISIONS?
An effective decision simultaneously increases TP, decreases I, and decreases OE.
Balance the flow with demand, not capacity.
The level of activity of the system is determined by constraints in
Activating a resource and utilizing it are not the same.
An hour lost at a bottleneck is an hour lost by the entire system.
An hour saved at a non-bottleneck is worthless.
Performance of an operation should be evaluated by its bottom
Alex and Lou identify three fundamental decision issues as
critical to the success of any manager