The Goal – Operational Excellence Made Possible

In their book, The Goal: A Process of Ongoing Improvement, Eliyahu M. Goldratt and Jeff Cox introduced their Theory of Constraints as a primary method to realize operational improvement.

Key Concepts

  • Global Optimization: The key in any process and any operation is to optimize the whole system, especially being wary of local optimums.

This applies to businesses in general. I have advised countless Vice Presidents of Operations that their job is not to have the best overall manufacturing or distribution operation. Their job is to have the manufacturing or distribution operation that helps best serve the customer and thus creates the best overall business. Having the lowest cost operation does nothing if customers are not being served and the business overall is bleeding money.

  • Balance: Balance flow through the plant to demand.
  • Goal of Any Improvement Program: Reduce operational expense and reduce inventory while simultaneously increasing throughput. Improving throughput is most important, then reducing inventory. Finally, operating expenses will come down.

Theory of Constraints

  • Identify system’s constraint
    • What is the absolutely most important bottleneck / critical resource / limiting factor / rate-determining step?
  • Decide how to improve this constraint
  • Focus relentlessly on this constraint
    • Subordinate everything else to the above decision
    • Elevate the importance and make visible the system’s bottlenecks
  • Once the constraint is alleviated, go back to the first step and repeat
  • Do not allow inertia to cause a system’s constraint.
  • Just one example of using the Theory of Constraints successfully

    In one facility that I oversaw, we determined that the constraint was the overhead crane that was needed to lift and move product. Before spending significant money to buy a new crane, we re-scheduled production and workers’ shifts so that the overhead crane never stopped; it was always lifting or moving product from the beginning of the workday to the end. As a result of this focus on the crane as the constraint, we were able to increase production throughput by 30% without any additional investment.

Conclusion

  • Focus continuous improvement efforts on increasing throughput, not on reducing costs.
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About David Shedd

David has been a President - CEO - COO of an up to $350M group of manufacturing, distribution, specialty retail and services companies, having led 22 different businesses from turnarounds to start-ups to fast growth companies.
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