Lean Flow Seminar

True32- LEAN-TOC Seminar-Part I
"Give me but one firm spot on which to stand, and I will
move the earth." -Archimedes

True32- LEAN-TOC Seminar-Part I
“Don’t be an idiot, turn off your pagers and cell
phones.” –Eric Lehmann

Lean Manufacturing
Lean Thinking is sometimes called Lean Manufacturing, the
Toyota Production System or the Ohno Production System. Lean
focuses on the removal of waste, which is defined as anything not
necessary to produce the product or service.
The three M’s of wastes are muda (waste), mura (unevenness) and
muri (overburden).
“The Toyota Production System is 80% waste elimination, 15%
production system and only 5% kanban.” –Shigeo Shingo

The Toyota Production System
A production system that is
steeped in the philosophy
of the complete elimination
of all waste and that
imbues all aspects of
production with this
philosophy in pursuit of the
most efficient production
method.
-source: Toyota Website

Sakichi Toyoda (1867~1930)
The automatic loom invented by Sakichi
Toyoda not only automated work that
used to be performed manually but also
built the capability to make judgments
into the machine itself.
By eliminating both defective products
and the associated wasteful practices,
Sakichi Toyoda succeeded in
tremendously improving both productivity
and work efficiency.

Kiichiro Toyoda (1894~1952)
Kiichiro Toyoda, who inherited his
father’s philosophy, set out to realize his
belief that "the ideal conditions for
making things are created when machines,
facilities, and people work together to add
value without generating any waste." He
conceived methodologies and techniques
for eliminating waste between operations,
between lines, and between processes.
The result was the so-called Just-in-Time
method.

Eiji Toyoda (1913~)
By ensuring thorough implementation of
jidohka and the Just-in-Time method, Eiji
Toyoda, nephew of Sakichi Toyoda and
first cousin to Kiichiro Toyoda increased
workers' productivity in adding value and
realized the Toyota Production System,
which enabled Toyota to compete head-on
with companies in Europe and the U.S.

Taiichi Ohno (1912~1990)
With strong backing from Eiji Toyoda,
Taiichi Ohno helped establish the Toyota
Production System, and built the
foundation for the Toyota spirit of
"making things" by - for example,
creating the basic framework for the just-
in-time method. Today, Taiichi Ohno
gets more credit for the creation of the
Toyota Production System than any of
the Toyoda family members.

Toyota Philosophy
Toyota Motor Corporation's vehicle production system is a way
of "making things" that is sometimes referred to as a "lean
manufacturing system" or a “just-in-time (JIT) system," and has
come to be well-known and studied worldwide.
This production control system has been established based on
many years of continuous improvements, with the objective of
"making the vehicles ordered by customers in the quickest and
most efficient way, in order to deliver the vehicles as quickly as
possible."

Toyota Philosophy
The Toyota Production System (TPS) was established based on
two concepts: The first is called "jidoka“ (which can be loosely
translated as "automation with a human touch,” or autonomation)
which means that when a problem occurs, the equipment stops
immediately, preventing defective products from being produced;
The second is the concept of “just-in-time," in which each
process produces only what is needed by the next process in a
continuous flow.
Based on the basic philosophies of jidoka and just-in-time, the
TPS can efficiently and quickly produce vehicles of sound
quality, one at a time, that fully satisfy customer requirements.
-source: Toyota Website

Toyota Production System House

Just-in-Time: Making only "what is needed,
when it is needed, and in the amount needed!"
“The essence of just-in-time is that the manufacturer does not
keep much inventory on hand, he relies on suppliers to furnish
parts just in time for them to be assembled. U.S. companies, by
contrast, have traditionally employed what is sometimes called
the ‘just-in-case’ system, fat inventories that ensure production
won’t be interrupted.”
-Jeremy Main-Fortune Magazine, April 1994

The majority of cabinet companies see Work In Process (WIP) as
a lubricant that assures the smooth flow of production. In reality,
WIP is like a narcotic: tolerate it, and you will soon slide into a
state of addiction, and require more and more of it in order to feel
secure.

Producing quality products efficiently through the complete
elimination of waste, inconsistencies, and unreasonable
requirements on the production line.
In order to deliver a vehicle ordered by a customer as quickly
as possible, the vehicle is efficiently built within the shortest
possible period by adhering to the following:

A: When a vehicle order is
received, a production
instruction must be issued
to the beginning of the
vehicle production line as
soon as possible.
B: The assembly line must
be stocked with small
numbers of all types of
parts so that any kind of
vehicle ordered can be
assembled.

C: The assembly line must
replace the parts used by
retrieving the same number
of parts from the parts
producing process (the
preceding process).
D: The preceding process
must be stocked with small
numbers of all types of
parts and produce only the
numbers of parts that were
retrieved by an operator
from the next process.

Jidohka: Quality must be built in during the
manufacturing process!
If a defective part or equipment malfunction is discovered, the
machine concerned automatically stops, and operators stop work
and correct the problem.
For the Just-in-Time system to function, all of the parts that are
made and supplied must meet predetermined quality standards.
This is achieved through jidohka.

Jidohka means that a machine safely stops when the normal
processing is completed. It also means that, should a quality or
equipment problem arise, the machine detects the problem on its
own and stops, preventing defective products from being
produced. As a result, only products satisfying the quality
standards will be passed on to the next processes on the
production line.

Since a machine automatically stops when processing is
completed or when a problem arises and is communicated via the
"andon (problem display board)," operators can confidently
continue performing work at another machine, as well as easily
identify the cause of the problem and prevent its recurrence. This
means that each operator can be in charge of many machines,
resulting in higher productivity, while the continuous
improvements lead to greater processing capacity.

Heijunka: Leveling the Load
“The slower but consistent tortoise causes less waste and is much
more desirable than the speedy hare that races ahead and then
stops occasionally to doze. The Toyota Production System can be
realized only when all the workers become tortoises.”
- Taiichi Ohno, 1988

If our objective is to work toward the ultimate Lean goal of
continuous or one-piece flow, then we want to be able to make
just what the customer wants when they want it. Instead, what
we often see is a “hurry up, then slow down” build-to-order
approach. Our orders vary from month to month, creating uneven
production scheduling. One month we will be building huge
quantities, paying overtime, and taxing our people and
equipment, but the next month we will be sending our people
home for lack of anything to do. This environment can create
large amounts of inventory, confusion, problems, and poor
quality. What we need is a true balanced lean workflow. This is
the Toyota concept of heijunka, leveling out the work schedule.

Heijunka is the leveling of production by both volume and
product type or mix. This system does not build products
according to the actual flow of customer orders, it takes the total
volume of orders in a period and levels them out so the same
amount and mix are being made each day. In a true build-to-order
system you build products A and B in the production sequence of
customer orders (e.g., A, A, B, A, B, B, B, A). This causes you to
build product irregularly. If your orders are twice as much on
Monday compared to Tuesday, you end up paying overtime on
Monday and sending employees home on Tuesday. The answer
is to build a level schedule everyday by taking the actual
customer demand, determine the pattern of volume and mix, and
building your level schedule. If you know you are making five
A’s and five B’s, you create a level schedule of ABABAB. This
is called leveled, mixed-model production.

Chart 1 (below) gives an example of traditional unleveled
production for a company that manufactures tractors. The line
makes small, medium, and large tractors. The medium are the
big sellers and are made early in the week, Monday through
part of Wednesday. There is a changeover and then the small
tractors are made Wednesday through Friday morning. After
another changeover the largest tractors, which are in smallest
demand, are made Friday afternoon. This typical unleveled
method creates four problems:
 Customers usually do not buy products predictably. If the customer
decides to buy the large tractors early in the week the plant is in trouble.
 The risk of unsold goods that must be kept in inventory.
 The use of resources is unbalanced.
 There is an uneven demand on upstream processes.

Heijunka: Leveling the Load (Chart 1)
Monday
Tuesday
Wednesday Changeover
Thursday
Friday
Changeover

Chart 2 represents an example of mixed model leveled
production. By reducing the changeover time and employing
other Lean methods, the plant is able to build the tractors in
any order they want to on their mixed model assembly line.
The four benefits of leveling the schedule is:
 Flexibility to make what the customer wants when they want it.
 Reduced risk of unsold goods.
 Balanced use of labor and machines.
 Smoothed demand on the upstream processes and suppliers.

Heijunka: Leveling the Load (Chart 2)
Monday
Tuesday
Wednesday
Thursday
Friday

To achieve the benefits of continuous flow, companies must level
out the workload. Heijunka will eliminate waste by leveling your
product volume and mix, but most importantly, will level out the
demand on your people, equipment, and suppliers. Without
leveling, waste will increase as people are driven to work like
mad and then stop and wait, just like the hare.

Standardized Work
As defined at Toyota this is the optimum combination of men,
machines and materials. Standards are typically a set of policies,
rules, directives and procedures established by management for
all operations, which serves as guidelines that enable all
employees to perform their jobs successfully (i.e., Standard
Operating Procedures and/or Operations Manual).

Standardized Work
Standard Operating Procedures in a Kaizen oriented company is
subject to constant change and improvement. At the same time,
management tells workers that the SOP is an absolute standard
to which they should strictly conform until it is improved.
-Nissan Motors

Standardized Work
There can be no improvement where there are no standards. The
starting point for any improvement is to know exactly where you
currently stand. For a Kaizen company, these standards exist
only to be superseded by better standards, every standard, every
specification and every measurement cries out for constant
improvement.

Standardized Work
Standard work can and should also be applied to time. Ideally
there will be a single, precise, standard unit of measure that can
be applied to every worker, every manager, every machine, and
every process. This single unit of measure is typically referred to
as TAKT time (more on this a little later).

KAIZEN: Continuous Improvement
“Kaizen means improvement. Moreover it means continuing
improvement in personal life, home life, and working life. When
applied to the workplace Kaizen means continuing improvement
involving everyone, managers and workers alike.”
–Masaaki Imai

Another important aspect of Kaizen has been its emphasis on
process rather than performance. Kaizen has generated a process
oriented way of thinking, and a management system that supports
and acknowledges people’s process oriented efforts for
improvement. This is in sharp contrast to the western
management practice of reviewing people’s performance strictly
on the basis of results and not rewarding the effort made.

“There will be no progress if you keep doing things exactly the
same way all the time.”
–Masaaki Imai
“Complacency is the archenemy of Kaizen.”
–Masaaki Imai

“Kaizen starts with a problem, or more precisely, with the
recognition that a problem exists. Where there are no problems,
there is no potential for improvement. …problems are the keys to
hidden treasure. In the Western ‘hire-and-fire’ environment,
identification of a problem is often tantamount to a negative
performance review and may even carry the risk of dismissal.”
–Masaaki Imai

The customer: The Ultimate Judge of Quality
“All of management's efforts for Kaizen boil down to two words:
customer satisfaction. No matter what management does, it is of
no avail if it does not lead to increased customer satisfaction in
the end.”
–Masaaki Imai

KAIZEN and Measurement
Productivity is a unit of measure, not a reality, and yet we often
seek the “secret” of productivity, as if the key were in the
measures of productivity. It is like saying we are going too fast,
and looking to our speedometer for the reason. To improve the
situation, we don’t look to the speedometer (the unit of measure
that tells us we are going too fast), we look to the accelerator, and
take our foot off of it, or at least apply less pressure to it.
Productivity is simply the description of the current state of
affairs based on the efforts of our people.

Kanban or Kamban
A communication tool in the “just-in-time” production and
inventory control system developed by Taiichi Ohno at Toyota.
A Kanban, or signboard, is attached to specific parts in the
production line signifying the delivery of a given quantity. When
the parts have all been used, the same sign is returned to its
origin where it becomes an order for more.
The Kanban system is only one of many elements in a fully
integrated system of Total Quality Control (TQC) and cannot be
inserted into a production process apart from these other TQC
elements.

Kanban
“The Toyota Production System is a “production system,” and a
kanban method is merely a means for controlling the system. …
A kanban method should be adopted only after the production
system itself has been rationalized.”
-Shigeo Shingo
Kanban is more akin to hunting than farming.

SMED (Single Minute Exchange of Die)
You can’t investigate the Toyota Production System without
hearing the term SMED often, and for good reason, this is an
essential part of the system. To achieve small process batches, or
single piece flow, you have to minimize setup and changeover
time. Setups and changeovers can be divided into two distinct
activity groups.

 Internal Setups- procedures that can be performed only when
the machine is stopped.
 External Setups- procedures that can be performed while the
machine is in operation.
“By simply separating and organizing external and internal
operations, internal setup time (unavoidable machine
shutdowns) can be reduced by 30 to 50 percent”
–Shigeo Shingo

Single Minute does not refer to one minute, but rather it is
referring to anything less than 10 minutes. Toyota, under the
direction of Shigeo Shingo, had amazing success with this
process, and in some operations was able to cut 8 hours of
setup time to less then 10 minutes.

“To be successful with the SMED process, like many other
essential parts of the Toyota Production System, we need more
than know-how, we need know-why. With know-how, you can
operate the system, but you won’t know what to do should you
encounter problems under changed conditions. With know-why,
you understand why you have to do what you are doing and
hence will be able to cope with changing situations.”
-Shigeo Shingo

QCS: Quality, Cost, Scheduling
In the construct of a hierarchy of overall company goals as
described by Shigeru Aoki, senior managing director of Toyota
Motors, the ultimate goal being “to make profits …is self
evident,”… “the next super-ordinate goal should be quality, cost
and scheduling (quantity and delivery). … Therefore we should
regard all other management functions as existing to serve the
three super-ordinate goals of QCS.”

Information is a key part of being effective with these three
goals: there is Quality Information, Cost Information and
Scheduling Information. Each can be made so complex that
they create incredible amounts of muda (i.e. Material
Requirements Planning or MRP and Enterprise Resource
Planning or ERP). This information is also time sensitive, or
rots if not utilized.

Information that is collected but not properly used rots rapidly
(Tractivity). Any owner or manager who does not utilize the
information collected by getting it into the hands of those that
need it, and does not have a systematic way to utilize the
information is doing a great disservice to himself, and his
company and creating massive waste in the form of lost
opportunity and employee time.

Schedule and load control are two important concepts of the
Toyota Production System. Schedule control ensures that product
is made on time. Load control ensures that product can in fact be
made, that there is a proper balance between capacity and load.
For example, if you don’t show up at the airport on time, you will
miss your plane (schedule control), but even if you are on time,
you won’t be able to get on the plane if it is already full (load
control).

Quality
“There is very little agreement on what constitutes quality, in its
broadest sense, quality is anything that can be improved. When
speaking of “quality” one tends to think first in terms of product
quality. When discussed in the context of Kaizen strategy
nothing could be further off the mark. The foremost concern here
is the quality of people.
The three building blocks of a business are hardware, software
and “humanware.” Only after humanware is squarely in place
should the hardware and software aspects of a business be
considered. Building quality into people means helping them
become Kaizen conscious.”
-Masaaki Imai

Quality
As company owners, productivity may feel like it is our primary
concern, but may seem to be the least concern for those that work
for us. Quality on the other hand is one thing we seem to have in
common (most everyone wants to be proud of what they do).
When we ask our employees to increase productivity, their
response many times may be, “Why? Are you not just asking us
to work harder? What’s in it for us?” However, nobody can
object when we ask them to increase quality, after all, quality is
the only way to stay competitive and serve our clients. It seems to
me that Toyota has capitalized on this, and that they clearly
understand that improving quality automatically leads to
improved productivity.

Quality
“Inspection alone does nothing to improve the quality of the
product, and the product quality should be built in at the
production stage. Build quality into the product.”
-Deming

Quality
Most companies only pay lip service to quality, or maybe better
stated as paying lip service at satisfying customers, but few have
a system to achieve it.
To achieve Quality, the Japanese took the Deming Wheel and
expanded it, and called their new tool the PDCA wheel, which
consists of Plan, Do, Check and Action. Much too broad a
subject to cover in this format, but worth your time to investigate
further.

Visible Management
The technique of providing information and instruction about the
elements of a job in a clearly visible manner so that the worker
can maximize his productivity (kanban is an example of this
technique, as is one piece flow).

TAKT Time
TAKT is a German word for rhythm or beat, and is the time it
takes to produce one piece of product. This is equivalent to
production quantity divided by total working time. Don’t be
fooled into thinking that reducing TAKT time necessarily has
anything to do with productivity improvement (a common
mistake).

TAKT Time
For example, ten workers may produce 12 cabinets per day, but
after work improvements, they may be able to produce 14
cabinets per day. This does not, however, mean that they should
produce 14 cabinets per day. If the finish department can only
finish the parts required for 12 cabinets, then 12 are all that are
needed, therefore the objective would be to produce 12 cabinets
with fewer than ten workers, not produce 14. Producing
unnecessary product does not represent a productivity
improvement.

The 7 Wastes
1. Waste of overproduction
2. Waste time spent at a machine or waiting
3. Waste involved in the transportation of units
4. Waste in processing
5. Waste in inventory
6. Waste of motion
7. Waste in the form of defective units

The 7 Wastes-Overproduction
Taiichi Ohno felt that Overproduction was the central evil that
led to waste in other areas. To eliminate this waste, Ohno utilized
the two main structural features of the Toyota Production
System: (1) just-in-time and (2) jidohka (autonomation).
Eliminating the hidden costs of overproduction actually saves
money. Ohno’s favorite definition for waste was “any human
activity which absorbs resources but creates no value.”

There are two types of overproduction:
 Quantitative- making more product than is needed
 Early- making product before it is needed
For most custom cabinet manufacturing businesses, the first
one is of no concern (we typically only make what is already
sold).

There is typically a high speed machine, like the CNC router that
is capable of much higher capacity than our requirements (sales
level), and with these machines, we have to understand that their
process capacity should serve production requirements, not
determine them. The quantity to be produced should be
determined solely on sales, and then the high speed machines
should only produce the quantity needed, which is achieved by
either slowing the processing down, or operating the machine
intermittently.

The 7 Wastes
Womack and Jones restated Ohno’s classification of the forms of
waste like this:
1. Mistakes which require rectification.
2. Production of items no one wants so that inventories pile up.
3. Processing steps which aren’t actually needed.
4. Movement of employees.
5. Transport of goods from one place to another without any
purpose.
6. Groups of people in a downstream activity standing around
waiting because an upstream activity has not delivered on time.
7. Goods and services which don’t meet the needs of the
customer.

The 7 Wastes-Cost Cutting
It is tempting to start “cost cutting” when starting an initiative
toward waste reduction, but this is not the purpose of the system.
Cost cutters are renown for diverting revenues from their
downstream customers (looking to charge their customers for
anything and everything that they can think of), they usually start
every sentence with something to the effect of “that will cost you
extra.”

The 7 Wastes-Cost Cutting
Cost cutters second initiative is typically aimed at eliminating
jobs.
Cost cutters third initiative is typically aimed at extracting profits
from their upstream suppliers (beating their suppliers up on cost,
and comparing costs on every single purchase).
Our primary objective should be to add value, not cut costs.

The 7 Wastes
Gemba 7 Wastes Poster
http://www.gemba.com/

The 5-S Movement
 seiri (sort-consolidation)
 seiton (straighten-orderliness)
 seiso (sweep-clean)
 seiketsu (standardize-personal cleanliness)
 shitsuke (self-discipline)

The 5-S Movement
Step 1 seiri (sort-consolidation)
 Work-in-process
 Unnecessary tools
 Unused machinery
 Defective products
 Papers and documents
Differentiate between the necessary and the unnecessary and
discard the unnecessary.

The 5-S Movement
Step 2 seiton (straighten-orderliness)
Things must be kept in order so that they are ready for use when
needed. An American mechanical engineer recalls that he used to
spend hours searching for tools and parts when he worked in
Cincinnati. Only after he joined a Japanese company and saw
how easily the workers were able to find what they needed did he
realize the value of “seiton.”

The 5-S Movement
Step 3 seiso (sweep-clean)
Keep the workplace clean.

The 5-S Movement
Step 4 seiketsu (standardize-personal cleanliness)
Operations Manuals, Standard Operating Procedures, standardize
the processes, and make everyone do them the same way until a
better way is discovered, then repeat the process.
Make it a habit to be clean and tidy, starting with your own
person.

The 5-S Movement
Step 5 shitsuke (self-discipline)
Follow the procedures in the plant. Lack of discipline has caused
far more failure than lack of intelligence or ability combined. Our
disciplined efforts must also be targeted at the right things,
moving and working are two different things - just because a
person puts a lot of effort into a task does not mean they are
helping the company reach its goals.

The 5-S Movement
Gemba 5-S Poster
http://www.gemba.com/

The Five W’s and One H
 Who- subject of production, what people and what machines?
 What- objects of production, what product?
 When- what time frame, what timing?
 Where- the space, where should items be put and by what
method of transport?
 Why- to find the cause for each of the above because they are
all important factors in unraveling a problem
 How-the methods, how to go about it?

The Five Why’s
At Toyota, the five W’s really mean five whys, asking why five
or more times until the cause of a problem is discovered. For
every factor: what, who, where, when and how, we ask why, why,
why, why, why? Asking once is never enough. By asking why five
times, how we should solve the problem is also clarified. Asking
why five times prevents us from ending our investigation before
we determine the root cause of the problem, the fundamental goal
of continuous improvement.

5 Steps to Implementing Lean
1. Identify which features create value.
2. Identify the sequence of activities called the value stream.
3. Make the activities flow.
4. Let the customer pull product or service through the process.
5. Perfect the process.
-Lean Thinking by Dr. James Womack and Professor Daniel Jones

1. Identify which features create value
The determination of which features create value in the product
is made from the internal (subsequent process) and external
customer standpoints. Value is expressed in terms of how the
specific product meets the customer’s needs, at a specific price,
at a specific time. Specific products or services are evaluated on
which features add value. The value determination can be from
the perspective of the ultimate customer or a subsequent process.

1. Identify which features create value
Those that want to shortcut this step will typically do one of two
things: they will either add bells and whistles to try and give the
illusion of value, or they will slash prices.
This first step forces us to think through the validity of our
product, and its proper application, after all, providing the wrong
product or service in the right way is still muda (no matter how
you market and sell it, a cabinet does not make a very good
football helmet).

2. Identify the sequence of activities called the
value stream
Once value is identified, then activities that contribute value must
be identified. The entire sequence of activities is called the value
stream. Then a determination is made as to whether activities that
do not contribute value to the product or service are necessary.
Necessary operations are defined as being a prerequisite to other
value added activities or being an essential part of the business.
An example of a non-value added but necessary process is
payroll. After all, people need to be paid.
Finally, the impact that necessary, but non-value added activities
have on the process is reduced to a minimum. All other non-
value added activities are transitioned out of the process.

3. Make the activities flow
Once value added activities and necessary non-value activities
are identified, improvement efforts are directed toward making
the activities flow. Flow is the uninterrupted movement of
product or service through the system to the customer. Major
inhibitors of flow are work in process (WIP), large batch
processing and transportation (carts, conveyors, etc.). These
buffers slow the time from product or service initiation to
delivery (lead time). Buffers also tie up money (cash flow) that
can be used elsewhere in the organization and cover up the
effects of system constraints and other wasted activities (they
give your bad employees a place to hide).

Many of our core problems stem from batch and queue
production, but many brilliant people working for very large
firms still utilize this antiquated methodology today, so how do
we justify looking for a new way when many would say the old
way is not broken?
Our answer lies in the furniture industry: many brilliant people,
working for brilliant firms, producing brilliant products and
services were eliminated. Their brilliance was overshadowed by
broken logic (batch and queue production). Their ship went down
with nothing but brilliant hands on deck.

Making activities flow is our magic bullet - it allows us to have
extraordinary success with average people on deck. Our primary
objective is to have average people working within a brilliant
system, producing products and services that provide real value
to the end user. But don’t get distracted, improve your processes
(the flow of materials and or product) before attempting to
improve your operations (the work performed on products by
workers and machines).

Consider the typical cabinet: it’s parts are machined and
edgebanded, then the parts are assembled, and the doors are
installed, drawers assembled and inserted into the cabinet, etc.
This series of changes to the parts of the cabinet are called
processing.
The router drills, grooves, notches, etc. This series of actions are
called operations, and should only be improved after the
processes have been improved and made to flow.

Processes are composed of four things: processing, inspection,
transport and delays. Of these, only processing increases value,
the other three do not. In fact, for the most part, they only
increase cost.

4. Let the customer pull product or service
through the process
After waste is removed and flow established, efforts turn to
letting the customer pull product or service through the process.
The company must make the process responsive to providing the
product or service only when the customer needs it, not before,
not after. In a custom cabinet shop, the sale starts the pull (the
majority of custom shops do not build finished good inventories,
hoping to sell them later), but we typically push everything
through the plant after the sale happens.

5. Perfect the process
This effort is the repeated and constant attempt to remove non-
value activity, improve flow and satisfy customer delivery needs.
While lean focuses on removing waste and improving flow, it too
has some secondary effects. Quality is improved. The product
spends less time in process, reducing the chances of damage or
obsolescence. Simplification of processes results in reduction of
variation. As we look at all the activities in the value stream, the
system constraint is improved or removed, and performance is
improved.

5. Perfect the process
Once the processes are perfected and made to flow, then you can
look at the operations, and utilizing poka-yoke or “mistake-
proofing” devices, you can make each operation mistake proof,
and zero defects can be achieved. There are two types of
operations, those that add value and those that do not. Operations
that do not add value, such as walking to get parts must be
considered waste and must be eliminated.

Action Plan
 Find a change agent (changemaster).
 Obtain the core lean knowledge (critical).
 Seize or create a crisis (read Lean Thinking).
 Map your value streams to determine the current situation
and to envision future opportunities.

Action Plan
Of these four action items, obtain the core lean knowledge is the
most critical. Shigeo Shingo believed it to be a mistake to
merely imitate the external features of the Toyota Production
System (i.e., kanban, just-in-time, etc.). The system cannot be
applied properly without a thorough understanding (profound
knowledge) of the principles it is based on.

Japan Productivity Center Philosophy:
We believe that improvement in productivity ultimately leads to
expanded employment opportunities. Temporary redundancy
should be dealt with to the extent possible by relocation, thus
minimizing the risk of unemployment.
We believe that specific steps should be studied by joint
consultation between labor and management.
We believe that the fruits of improved productivity should be
fairly distributed among management, labor, and consumers.

Summary
The Toyota Production System has been compared to squeezing
water from a dry towel.
I applied my heart to what I observed and learned a lesson from
what I saw: A little sleep, a little slumber, a little folding of the
hands to rest-and poverty will come on you like a bandit and
scarcity like an armed man. –Proverbs 24:32-34

True32 LEAN-TOC Seminar-Part II
"Give me but one firm spot on which to stand, and I will
move the earth." -Archimedes

Eliyahu M. Goldratt (1947~2011)
The Theory of Constraints was
developed by Eli Goldratt, who
was an educator, author,
scientist, philosopher, and
business leader. But he was,
first and foremost, a thinker
who provoked others to think.
Often characterized as
unconventional, stimulating,
and "a slayer of sacred cows,"
he exhorted his followers to
examine and reassess their
business practices with a fresh,
new vision.

Theory of Constraints
Dr. Goldratt was a physicist by education, and spent many years
in the hard sciences, but in the early 1980’s decided to apply
what he knew about the hard sciences to the soft science of
human organizations (businesses). His first attempt to convert the
world to the simplicity of TOC was his book The Goal.
“Physicists are looking for simplicity, even a child can
complicate something… TOC is an extension of physics.”
–Eli Goldratt
With that statement in mind, which of the following two
diagrams is more complex?

Theory of Constraints-Diagram A

Theory of Constraints-Diagram B

The average person would say that B is more complex based on
their belief that the more data required to describe a system, the
more complex the system is.
The physicist on the other hand would say that A is more
complex because complexity has nothing to do with the quantity
of data, they believe that the more freedom in the system, the
more complex it is. In diagram A, you have to touch all four
points to impact the system. In diagram B, assuming the lines
attaching the boxes represent cause and effect, only one point
needs to be touched to impact the entire system.

In other words, a physicist believes there are no complex systems
in reality.
The number one topic in physics today is the Uniform Field
Theory, that one thing is the cause behind the four forces that have
been identified (i.e. gravitation, electromagnetic, strong nuclear
and weak nuclear). The search has been on for decades for the one
thing that causes all four things. Einstein studied this for 30 years.
Who said one thing caused all four? Intuition tells us that 4 are too
complex, 1 thing must have caused all 4 (this is a fundamental
belief in physics). There you have it, the Theory of Constraints
defined. We can manage a complex system by focusing on a few
links.

Before we delve too deep into the subject of TOC, we have
to understand that it, like Lean Manufacturing is a process
of continuous change, so we have to start with two
questions that ultimately lead us to a third question.
1. What to change?
2. What to change to?
3. How to cause the change?

Obviously change is the key word, but in any system that
includes people, we have to be aware of the possible
ramifications of change:
Any Improvement is a change.
Any change is a perceived threat to security.
Threatened security always leads to emotional resistance.

Resistance to change is another seminar for another day, but
you have to be keenly aware of the resistance, and learn how
to deal with it to be successful. Now, let’s get back to our
three questions.
1. What to change? Pinpoint the core problems.
2. What to change to? Construct simple, practical solutions.
3. How to cause the change? Induce your people to invent the
solutions.

How do we improve a company? We fix the things that are not
good enough. If we were to ask the typical company owner what
is not good enough, he would typically say something like:
“Nothing is good enough, and it is my employees fault.” You can
simply read the WoodWEB to confirm my assertion.
If we were to ask the typical employee what is not good enough,
he would typically say something like: “Nothing is good enough,
and it is my employer or managements fault.” Again, you can
simply read the WoodWEB to confirm my assertion.

TOC focuses on system improvement. A system is defined as a
series of interdependent processes. An analogy for a system is the
chain: a group of interdependent links working together toward
the overall goal. The constraint is a weak link. The performance
of the entire chain is limited by the strength of the weakest link.
In manufacturing processes, TOC concentrates on the process
that slows the speed of product through the system.
Every system has to have at least one constraint, if there were no
constraints, then the systems capacity would be infinite, which
means it’s profit would also be infinite.

A system’s constraint is anything that limits a system from
achieving higher performance or its goal. Today, it is very easy
to be distracted by all the noise around us, and to not see the
simple logic in the fact that our system is limited by a constraint -
and using cost accounting, we seem to be masters at justifying
one hair-brained scheme after another hair-brained scheme. How
many of us have said something to the effect of “if I just had one
more machine, I would be successful.” Then, after we get that
machine, we say things like we could not live without it, but if
we ask a few hard questions, we will inevitably find the machine
may not have been the right decision.

 Were you able to ship even one more cabinet each day as a
result of purchasing the new machine?
 Did your Inventories and or Work In Progress go down as a
 Did you fire anybody because you did not need them after
purchasing the new machine?
If the answer to all of these questions is no, then the machine
purchase was a bad decision. For a decision to have value, it
has to effect one of these three things positively. To deal with
one of these three things, the machine would have to address
our primary constraint, but we are getting ahead of ourselves
here. Lets move ahead, and we will revisit this subject a little
later.

In training your legs for a marathon, your heart and lungs come
along for the ride. You do not have to concentrate on this, or
think about all three, it just happens naturally.
This means that we can focus on our constraint(s), and
everything else will come along for the ride - the only
management required of non-constraints is to make sure that they
protect the constraint (drum, buffer, rope), to do anything else is
not helpful.
System constraints are not acts of God, therefore there is
something we can do about them. Let’s take a look at a very
simple example.

Saw (9.1 minutes per cabinet)
Groove (.86 minutes per cabinet)
Band (5.4 minutes per cabinet)
Line Bore (1.5 minutes per cabinet)

The main assumption behind our current reality that trips us up is
the line of thinking that says the sum of our local optima leads to
global optima. What would be the result of running the Line Bore
machine all the time? Is it even possible? Is it OK for an
expensive machine to sit idle (think fire station-availability)?

The bottom line is we have no choice in this matter. Either
you manage your constraints, or they manage you. The
constraints will determine the output of your company
whether you acknowledge and manage them or not.
Another advantage to this line of thought is that it keeps us
focused on throughput rather than our costs. Costs are finite,
and can only be reduced so much (they can never be zero, or
less than zero). In other words, there can be NO continuous
improvement of a finite thing, but throughput on the other
hand is infinite, and can always be improved.

So now we can get back to our three questions.
 Were you able to ship even one more cabinet each day as a
 Did your Inventories and/or Work In Progress go down as a
 Did you fire anybody because you did not need them after
purchasing the new machine?
Actually, I think we need to make these three questions more
generic so they can apply to a broader spectrum of our
management issues.

 How much money is generated by your company?
 How much money is captured by your company?
 How much money do you have to spend to operate your
company?
Consider the following your new Performance
Measurements. To improve any system, we have to first
define the system’s goal, and the measurements that will
enable us to judge the impact of any decision on that goal.
Let’s assume that everyone's goal in business is to make more
money now and in the future (if it is not, it ought to be).

Theory of Constraints-Performance Measurements
 Throughput: the rate at which the system generates money.
 Investment: all the money that the system invests in
purchasing items the system intends to sell.
 Operating Expense: all the money the system spends in
turning investment into throughput.

Theory of Constraints-Throughput
Throughput is the rate at which the system generates money,
although throughput should not be associated with shuffling
money internally, like adding value to work in process and
finished goods inventories (if you don’t have a signed check or
cash in hand, it ain’t throughput). Throughput is everything that
brings fresh new money into the company. This includes but is
not limited to income from completed projects, interest bearing
accounts, early payment discounts, cash back bonuses, etc.

Theory of Constraints-Investment
Investment is all the money that the system invests in purchasing
items the system intends to sell. In addition to the obvious raw
materials, WIP and finished goods inventories, investment also
includes your land, buildings, machinery, computers, vehicles,
etc. The last three words (intends to sell) of our definition
typically confuses people when you throw the companies assets
into the mix, but consider the assets from a stockholder’s
position: each time he sells stock, he is selling his portion of the
assets, and consider your position when you approach the bank
for a loan, putting your assets up as collateral. And ultimately,
you WILL sell them as part of your company.

Theory of Constraints-Investment
Investment as it is defined by TOC accounting is distinctly
different than it is in a typical cost accounting system in how it
deals with finished good inventories. In a typical cost accounting
systems, if it is finished and on the loading dock, or on a truck, or
in a warehouse, it is counted as throughput, even though no fresh
money has entered the company as a result of the items becoming
finished goods (gamesmanship). In TOC accounting, the finished
goods inventories are still counted as investment (money spent,
not income), and are valued at the cost of the materials to
produce them, no value added labor is factored in (more
gamesmanship). The objective being to eliminate the generation
of “phantom profits” created by cost accountings allocations.

Theory of Constraints-Operating Expense
Operating Expense is all the money the system spends in turning
investment into throughput. Taking added value out of the
inventory does not mean that we do not have these outlays of
money. The expenses are real enough, but TOC does not
distinguish between fixed, variable, indirect or direct costs, all
payroll is counted as operating expense, not some as direct labor,
and some as indirect labor, everyone is needed to produce the
product, and we don’t lay all or part of our direct labor off every
time we have a weak sales month. This is another subject that we
only have time to touch on - TOC does not classify expenses as
fixed or semi-variable, the only thing that matters is that they are
totally variable or not totally variable (another subject for another
day).

Theory of Constraints-Performance Measurements
Take this same format and apply it to your people, if you want
your people to make decisions that take your company toward its
goal, you have to provide them with the means for them to do so.
This means we DO NOT have a measurement system that
contradicts our goal, causing our people to do more paperwork
than work (i.e. local machine efficiencies, eternal time tracking).
As Eli Goldratt likes to say often: “Tell me how you are going to
measure my performance and I will tell you how I will behave. If
you measure me in an illogical way…do not complain about my
illogical behavior.”

Theory of Constraints-Accounting
The beauty of TOC accounting is it’s simplicity. The math is so
simple it is elegant. Once you learn to use it, you can feel
confident in every decision you make being the right decision.
The fact is we never have all the information we need to make
good decisions, so what we need is a management accounting
system that allows us to make good decisions with the limited
amount of information we do have. Every decision needs to take
the impact on our constraint into account, and either make
throughput go up, or investment and operating expense go down,
or a combination of the three where the positive more than
offsets the negative. Cost accounting on the other hand drowns us
in data, and we still don’t know what to do.

Think about this TOC decision making tool for a minute: what
value is there in the fact that you KNOW what machine you need
to purchase next, as well as what NOT to purchase next? How
about knowing when to hire or not to hire, when to outsource,
and when not to outsource? Is there any value at all in knowing
what you need to do as opposed to trying it and just seeing how it
plays out?

Net Profit = Throughput - Operating Expenses
ROI = Throughput – Operating Expenses / Investment
That’s it, it really is that simple, and after you learn to use this
measurement system, making decisions will be a pleasure. You
no longer will loose sleep over whether to do A or B, or fret for
weeks or months about what to do next, or will a CNC machine
pay off for you or not. It allows for fast decisions that are directly
linked to the bottom line. Now, let’s see how to implement the
Theory of Constraints in your plant.

The 5 Steps to Implementing TOC
1. Identify the System’s Constraints
2. Decide how to exploit the System’s Constraints
3. Subordinate everything else to the above decision
4. Elevate the System’s Constrains
5. If in the previous steps a Constraint has been broken, go
back to step 1

1. Identify the System’s Constraints
Once this is accomplished, remember that to identify the
constraints also means to prioritize them according to their
impact on the Goal, otherwise many trivialities will sneak in, the
next step becomes self-evident. We have just put our fingers on
the few things which are in short supply, short to the extent that
they limit the entire system. So let’s make sure we don’t waste
the little that we have. In other words, step number 2 is:

2. Decide how to exploit the system’s constraints
Now that we decided how we are going to manage the
constraints, how should we manage the vast majority of the
system’s resources which are not constraints? Intuitively it’s
obvious - we should manage them so that everything that the
constraints are going to consume will be supplied by the non-
constraints. Is there any point in managing the non-constraints to
supply more than that? This of course will not help, since the
overall system’s performance is sealed, dictated by the
constraints. Thus the third step is:

3. Subordinate everything else to the above decision
But let’s not stop here, it’s obvious we still have room for much
more improvement. Constraints are not acts of God, there is
much that we can do about them. Whatever the constraints are,
there must be a way to reduce their limiting impact and thus the
next step to concentrate on is quite evident.

4. Elevate the System’s Constrains
Can we stop here? I don’t think so. Yep, your intuition is right.
There will be another constraint, but let’s verbalize it a little
better. If we elevate and continue to elevate a constraint, then
there must come a time when we break it. This thing that we have
elevated will no longer be limiting the system. Will the system’s
performance now go to infinity? Certainly not, another constraint
will limit its performance and thus the fifth step is:

5. If in the previous steps a constraint has been
broken, go back to step 1
Unfortunately, I cannot state these five steps without adding a
warning to the last one; “Do not allow inertia to cause a
system constraint.”
I cannot overemphasize this warning. What usually happens
is that within our organization, we derive from the existence
of the current constraints, many rules and policies.
Sometimes formally, many times just intuitively. When a
constraint is broken, it appears that we don’t bother to go
back and review those rules. As a result, our systems today
are limited mainly by policy constraints.

Summary
Technology and Advanced Manufacturing Systems can only
bring benefits if and only if they diminish a limitation.
We have to be extremely careful at this point. Before a new
technology or advanced manufacturing system can benefit our
company, we have to evaluate our OLD RULES and POLICIES
that were put in place before the technology or advanced
manufacturing system became available.
What benefit can any technology or advanced manufacturing
system bring if we neglect to change our old rules that
accommodated the limitation? Example: parts handling using a
Panel Saw versus a CNC Router.

Summary
For most cabinetmakers, their current systems are based on
local optima (i.e., how fast can we do each process, typically
based on the original one person foundation the company
was built on, and later on a large batch and queue
production system). Global optima needs new rules, so we
must ask ourselves the following questions.
 What is the power or benefit of the new technology and or
advanced manufacturing system?
 What limitation does this technology and or advanced
manufacturing system diminish?
 What OLD rules helped us to accommodate this limitation?
 What NEW rules should we use now?

Summary
If you took the majority of cabinet manufacturers in the world,
upgraded all of their machinery, software and information
systems to the latest and greatest available, but kept their old
rules and policies in place, you might increase their throughput
by 2%.
We have to change the rules and policies to really impact our
performance. There are two primary motivators for change,
which will it take to motivate you?
Greed- Pot of gold at the end of this Lean-Flow rainbow!
Fear- A lion (the bank, your wife or the Chinese) is about to
pounce on you!

Summary
Agreeing to change and changing are two distinctly different
things.
A partial implementation of a holistic approach is an oxymoron.
By holistic approach, I mean that the system is like an orchestra:
you can’t have the trumpet player overproduce, or produce early,
timing is everything when you are utilizing dependant events,
every player has to do their part precisely when their part is
needed.

BIBLIOGRAPHY
Deming, W. Edwards, The New Economics for Industry, Government,
Education, second edition (Cambridge, MA: Massachusetts Institute of
Technology, 1994).
Dettmer, William H., Goldratt’s Theory of Constraints: A Systems Approach
to Continuous Improvement (Milwaukee: ASQ Quality Press, 1997)
Goldratt, Eliyahu M., The Goal: A Process of Ongoing Improvement, second
edition (Great Barrington, MA: North River Press, 1994).
Goldratt, Eliyahu M., The Theory of Constraints, (Great Barrington, MA:
North River Press, 1990).
Goldratt, Eliyahu M., It’s Not Luck (Great Barrington, MA: North River Press,
1994).
Womack, James P., and Daniel T. Jones, Lean Thinking: Banish Waste and
Create Wealth in Your Corporation (New York: Simon & Schuster, 1996).

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