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Lean & TOC- The whole is greater than the sum of parts


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The Theory of Constraints provides a clear cut methodology for identifying the priority area and focusing improvements locations having the maximum impact on the entire organization in totality.

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Lean & TOC- The whole is greater than the sum of parts

  1. 1. Research PapersLEAN & TOCThe Whole Is GreaterThan The Sum Of The Parts! by Kuldeep Singh Malik
  2. 2. LEAN & TOCLean has been a huge success, but it has serious limitations in terms of long time taken, high cost involved, slowexecution and fewer improvements in the bottom line. It doesnt guide from which weak area to start in terms ofreaching goal of perfection thereby, creating priority conflicts among different department. On contrast, The Theory ofConstraints provides a clear cut methodology for identifying the priority area and focusing improvements locationshaving the maximum impact on the entire organization in totality. However, the combination of the TOC and Lean (TOC–Lean) becomes more powerful tool for improving profits and performance.The big two techniques of organizational improvements are namely, Lean (get lean across the supply chain andeliminate waste), and Constraint Management (get stronger throughout the whole of the supply chain increasethroughput, continually improving revenue generation).Lean principle focus: in getting Lean, by revenue stream mapping, cells, pull system, set-up reduction, 5s/visualworkplace, standardization, Kaizen and addressing the seven causes of waste.Constraints Managements focus: in getting Stronger by increasing throughput, using five focusing steps, laws ofconstraint management, systemic thinking processes, Systemic measures, Work flow methods, rum –Buffer –Rope(DBR) Critical Chain and replenishment.1. The Theory of ConstraintsThe Theory of Constraints (the TOC) is a developed by Eliyahu M. Goldratt. It claims that each system has atleast one constraint, challenging current state of businesses practices Thus, if the organization is viewed asa chain, then the place to focus our improvement efforts must be at the point of greatest weakness – theweakest link, limiting factor or constraint. It is this aspect that lies at the heart of the Theory of Constraintsapproach called the Five Focusing Steps, first described by [1] and shown below:1.1 Identify the constraint:this is the starting point, the area of greatest weakness, the area of maximum focus. The constraint mightbe physical, a machine, the size of the building, the number of people etc. It might be a policy such as anovertime ban, only allowing one shift etc. Sometimes a policy constraint creates a physical constraint andthen the organization suffers from a bottleneck. It can lie at any point on the revenue chain, internal to theorganization, within the supply base, in the market, or in the link between the market and the organization.Indeed there are few market constraints but many marketing constraints within organizations. The problemseems to be that many companies operate without knowing where the constraint is.1.2 Exploit the constraint:once the constraint has been properly identified, and assuming it is physical the next step is to maximize theperformance of the constraint. This is about making sure that the performance of the chain isdemonstrating its full capability before any major spend is undertaken.1.3 Subordinate to the constraint:this is the tough call for any companies. This demands that all decisions are linked to the performance ofthe constraint and the relationship between whatever, and wherever, it is and the three necessaryconditions for success. The performance of all the other links in the revenue chain must support theperformance of the weakest link; their performance is only linked to their contribution to that of theconstraint.1.4 Elevate the constraint:this is the time to increase the capability of the revenue chain as a whole, by increasing the capacity of thephysical constraint, or changing the policies. This step is only undertaken once control has been achievedthroughout the whole of the revenue chain through subordination.Vector Consulting Group
  3. 3. LEAN & TOC1.5 Prevent inertia – go back to step 1:if the constraint has been addressed by elevation then there is the certainty that there is a new constraintwhich means the process must be completed once more, and this ensures a process of on-goingimprovement.2. The principles of LeanLean has been defined as a manufacturing philosophy that shortens the timeline between customer orderand shipment by eliminating waste .The Lean Focus areas are namely, viewing value from the customersperspective, getting value to flow through the system, pulling value from the customer back through thesystem and continuously eliminating all waste in the flow.The five principles of lean are [3]:First: Specify the value desired by the customerSecond: Identify the value stream for each product providing that value and challenge all of the wastedsteps (generally nine out of ten) currently necessary to provide itThird: Make the product flow continuously through the remaining value-added stepsFourth: Introduce pull between all steps where continuous flow is possibleFifth: Manage toward perfection so that the number of steps and the amount of time and informationneeded to serve the customer continually falls3. The similarities between TOC and Leanè A pull system is advocated by both the theories to adhere to the goal of perfection.è Continuous improvement is advised in the whole organization by both the theories.è Continuous improvements must enhance the value of the product from the customers viewpoint is advised by both the theories.4. The differences between TOC and Lean; and how TOC wins over Lean:è Whereas Lean sees an organization as a sum of parts which can be improved individually, TOC focuses on that one area (the constraint) which, when improved, will have the greatest holistic benefit. Improvements elsewhere are then made, but the priority at all times remains the constraint resource.è Lean aims to reduce lead time and inventory and thus costs by eliminating waste; TOC aims to reduce lead time and inventory in order to gain capacity, increase Throughput and provide a competitive edge – thus enabling the business to grow.è Lean promotes maximum resource efficiency, whilst TOC promotes maximum resource flexibility.è Lean strives to eliminate inventory, idle capacity and variability; TOC recognizes that in practice, variability can never be completely eliminated - but its effects can be protected against by the use of time buffers, whilst protective capacity and inventory can safeguard Throughput against variability of supply.Vector Consulting Group
  4. 4. LEAN & TOC5. What is TOC-LeanTOC -Lean is the fusion of two powerful tools for improving the bottom-line performance of amanufacturing company, It is a philosophy of constantly eliminating waste from the value stream, in allareas and in all forms as defined by TOC and the Buffer Management and a systemic approach across thewhole of the supply chain.6. Why Combine Lean Manufacturing with Theory of Constraints (TOC)Techniques?Lean fails to guide implementers from which weak area to start in terms of reaching goal of perfectionthroughout the entire organization. It can create a conflicts scenario among different department in termsof prioritization and it is advised not to use Lean everywhere except at the places where it will have thegreatest impact – the constraint. Improving upon this shortcoming of Lean, The Theory of Constraintsprovides a clear cut methodology for identifying the priority area and focusing improvements where theywill have the maximum impact on the entire organization in totality. Thus it is evident that TOCmethodology can provide Lean techniques with a high degree of focus which is both in tune with reality andachievable on a practical level, effectively bridging the knowledge gap that can exist between Lean in theoryand Lean in practice. Because the bottom line benefits to be gained from increasing Throughput are greaterthan those likely to be realized via Lean waste/cost reduction alone, TOC provides Lean Manufacturing witha forward-thinking framework which not only directs improvement efforts where they will be mostbeneficial, but which is also an excellent platform for future growth.7. The Implementation Approach of TOC-LeanThe Implementation Approach of TOC-Lean is as follows:è Identification of the core problem/s through robust analysis, e.g. value stream mapping and the collection of appropriate and accurate data.è In-depth training in combined TOC-Lean principles.è Use of collected data to plan implementation stages.è Implementation of TOC-Lean principles and associated improvement techniques e.g. 5S, Six Sigmaè Mentoring and on-going support to forestall/overcome any obstacles that may hinder implementation.è Mentoring and retained support to ensure that continuous improvement can be sustained.8. “TOC –Lean “fighting out capacity thief:the whole is greater than the sum of the parts A capacity thief – defined as that which robs flow of capacity and thus slows, or even stops, flow in itstracks. Capacity thieves are fought out by the application of the key tools and techniques of the TOC-Leanapproach.è Material: It is tackled with the Drum – Buffer – Rope (DBR) approach contained within the TOC. People as capacity thieves is tackled by the application of Buffer Management and changes to the measurement systems, removing efficiency measures and replacing them with measures that determine flow and the effectiveness of the flow management system to the bottom-line.Vector Consulting Group
  5. 5. LEAN & TOCè Breakdowns: These are addressed by Total Productive Maintenance (TPM) - or Production Led Maintenance. Maintenance is a necessary condition for ensuring that schedules are not disrupted by breakdowns or having to run the machine slower than the specification etc. Where the machine is a constraint this has considerable implications for the flow, and the ability of the system to make money.è Set-Up and Adjustments: the ability to move from one product line to another constrained by two factors: firstly, having to work according to a large batch system and secondly, having to maintain high levels of efficiency on each machine. Both of these aspects lead to considerable waste within the system. Through a simple understanding of “internal set-up time” and “external set-up time” and the use of video to capture the actual set-up it is possible to reduce the time taken to move from product line A to product line B. Set-Ups are addressed by Set-Up Reduction (SMED).è Defects: these are addressed by Quality Improvement: Kaizen, DMAIC (Six Sigma) and Deming. Considerable investment is made each year to try to gain control over working environments that are deemed to be statistically out of control. The rise of techniques such as Six Sigma is testament to this need to produce zero defects.9. Results of the combination of TOC-Lean:Some outstanding results were being reported in the plants that were using a combination of the TOC andLean methodologies .A return yield of 89% was reported in TOC-lean using plants in comparison to thoseusing only Lean or Six Sigma reported return yields of just 4% and 7% respectively [5].10. ConclusionsLean has been a huge success world over. TOC being a technique shares some fundamental similarities aswell as differences with Lean. Lean has some limitations wherein if combined with TOC, all the gaps can beeasily filled to reach the goal of perfection .The TOC –Lean eliminates any priority conflicts among differentdepartments by providing a clarity on the priority issues by giving specifications of locations having themaximum impact on the entire organization in totality. Thus, the combination of the TOC and Lean (TOC–Lean) becomes more powerful tool for improving profits and performance. If any organization relies onlyon investments in Lean, it may only result in some local improvements while ignoring bottom line. However,it should not be concluded that Lean is not an unsuccessful tools. Those companies that have alsoimplemented the Theory of Constraints (TOC) and Lean together have found a huge difference in theirbottom-line. Thus, TOC in combination with Lean confirms that the whole is greater than the sum of theparts.References:Steven J. Balderstone and Victoria J. Mabinsearch (November 29, 1999), The World of the Theory of Constraints: AReview of the International Literature (The CRC Press Series on Constraints Management), CRC Press; 1 editionEliyahu M Goldratt (2004); The Goal: A Process of Ongoing Improvement, North River PressJames P. Womack and Daniel T. Jones (1996); Lean Thinking: Banish Waste and Create Wealth in Your Corporation,Free Press.Reza M. Pirasteh & Kimberley S. Farah (May, 2006), Continuous Improvement Trio, Elements of TOC, Lean and SixSigma make beautiful music together; The APICS journal.Vector Consulting Group
  6. 6. LEAN & TOCCorbett, T. (1998) Throughput Accounting; North River Press Great Barrington MAGoldratt, E.M. Fox, R.E. (1986); The Race .North River Press Great Barrington MAGoldratt, E.M. Schragenheim, E, E. and Ptak, C.A. (2000); Necessary But Not Sufficient, North River Press GreatBarrington MA Kuldeep Singh Malik is Head of Research at Vector Consulting Group. Vector Consulting Group ( is the leader of ‘Theory of Constraints’ consulting in India. Vector has been working closely with some of the well known retail chains, FMCG, fashion products, custom manufacturing industry and auto after market companies to improve their overall profitability through supply chain effectiveness. Kuldeep Singh Malik can be reached at kuldeep@vectorconsulting.inVector Consulting Group