Thinking Process 1 introduction 1.1.1 What is the Theory of Constraints? It is a theory that teaches how to manage constraints that could occur in business, personal life, schools, colleges and elsewhere. The Theory of Constraints states that you must manage the constraint, otherwise the constraint will start managing you. Instead of you deciding the way things should happen, the constraint will decode the route of events. TOC is defined as a management philosophy by some authors. Some tools developed by TOC are managerial, rather than technical tools. However, the concept of TOC started with technical solutions for shop floor operations, moving on to supply chain, project management, sales, marketing, finance, and finally to strategy and tactics’ development. Today, there is no area of business or personal life where TOC is not applicable. History of TOC TOC is the science or management philosophy of techniques developed by the physics professor, Dr. Eli Goldratt. He started his work in the area of ‘operations at his uncle’s chicken factory. When his uncle was travelling, Dr. Goldratt was asked to take care of the factory for a period of time. When he started working on the shop floor, he observed the way operating people were working and making decisions. He started applying the analogies of physics in this area of manufacturing operations. Dr. Goldratt successfully developed some new techniques for production planning that are now known as the Drum-Buffer-Rope scheduling method. This scheduling was done considering the manufacturing constraint on the shop floor. Later, Dr. Goldratt tested it out in some engineering companies and found that it worked smoothly. ‘This technique brought him exponential improvement in the bottom line results of the organization.2 ‘Tusory OF ConstRAINTS Dr. Goldratt’s struggle to change people's mindsets After the successful implementation of the concept of TOC, constraint resource and Drum-Buffer-Rope scheduling, Dr. Goidratt decided to share his know- ledge with the working people. The result was the large-selling book, The Goal. However, despite its popularity, Dr. Goldratt’s struggle was not over. He made efforts to work on changing the mindsets of people. Some of the important mindsets in the various areas of business are: 1. Operations a. For its optimum utilization, a machine must work all the time. b. No worker should be idle on the shop floor; it’s a loss of productivity. 2. Project Management a. The best way to manage a project is by controlling its cost. b. If everybody involved in the project meets their timelines, then the project is completed on time. 3. Supply Chain and Distribution Yo have proper inventory management, accurate forecasting is required. b. Always hold the stock as close to the consumer or end user as possible, c. No finished goods’ inventory should be there in the manufacturing plant. d. Always look for reduction in transportation cost of the raw material as well as the finished goods. 4, Finance a. Purchase a machine that reduces the cost of that process. b. Sell the product that gives maximum margins: cc. If the cost of in-house production is higher than the vendor's cost, get the material from the vendor. These were the various wrong concepts im different business areas. Dr. Goldratt struggled to change these mindsets of the operating people. 1.1.2 Chain Analogy—Weight and Strength Earlier, industries worked on the chain analogy — the weight of the chain. If the weight of the chain is the cost of the running business, then the profits can be improved by reducing the total cost of product, i.e. weight of the chain. Business is like a chain having a number of links in the form of different departments that can be listed as sales, logistics, production, purchase, etc, As a conventional approach, a company used to optimize the performance of all links with the basic assumption that if the weight of all links is reduced, then the weight of the complete chain will also decrease, which is proportionate‘ONSTRAINTS tresource his know- »00k, The not over. 2ss are: time. ductivity. st. then the asting is possible. facturing material o's cost, weas. Dr. Te. ae chain, 1e profits at of the form of surchase, Jormance reduced, ortionate THINKING Process to the cost of the product. However, after the optimization of the performance of the links——various departments—the total rise in the profit was not equal Figure 1.1 Chain Analogy to the summation of the improvements in the departments. This was the basic failure of the weight analogy. To get a clear idea of the weight analogy, we will go through an example of a manufacturing process Figure 1.2 shows the manufacturing process of a stainless stee! utensil. The various processes are blanking, deep drawing, trimming, spinning, buffing and packaging. As per the chain weight analogy, if all chains will do 10 per cent improvement in the productivity, then the production should go up by the summation of the improvements, i.e. 10% x 6 = 60%. This is called the chain analogy. Blanking Trimming Packaging 60/ Hr 55/ Hr 40/ Hr Figure 1.2 Process Flow Diagram From the above structure, one can see that the production of the plant per d is 35 utensils per hour. After making expensive efforts to increase productivity in all departments, the net rise in production was only 3.5 utensils per hour instead of 18 utensils per hour.4 ‘THEORY oF CONSTRAINTS 1.1.3 Strength Analogy TOC also uses the chain concept for improvements within the organization. However, the analogy here is the strength analogy and not the weight analogy. Strength analogy states that business is like a chain, and the maximum capacity to earn profits is equivalent to the strength of the chain, which is decided by the weakest link in the chain. A chain having four links with a capacity of 10 kilograms and one link with a capacity of five kilograms can carry a load of five kilograms only. When one wants to increase the strength of the chain from five to 10 kilo- grams, there is no meed to increase the strength of the other four links that have strength of 10 kilograms. One should optimize the strength of the weakest link, ie. the link with strength of five kilograms. The same analogy is applied in the TOC technique. Chain Analogy—An Exaryple The example from the previous section will be considered again. Figure 1.3 shows the constraint process in the whole manufacturing chain. The weakest department in the chain is that which is processing minimum utensils per hour. The constraint department is deep drawing, which is processing utensils at the minimum rate, i.e. 35 per hour. Hence, the production rate of the plant is also 35 utensils per hour. Instead of trying to increase the productivity of all departments, there is a need to improve the productivity of the constraint Blanking 45/ Hr 60/ Hr 58/ Hr 45/7 Hr Figure 1.3 Process Flow Diagram with Constraint department only, i.e. deep drawing. If its production level goes up to 45 utensils per hour, the production of the plant will directly go up to 45 utensils per hour,EE st er nt of nt Tuinkinc Process 5 1.1.4 New Performance Measures TOC came up with new performance measures that are conceptually different from the conventional performance measures of business. The measures are explained below: 1. Throughput It is the money earned by the business through sale; not by production. In conventional theories, throughput is defined in various ways. For a manufacturing plant, throughput is the quantity produced by the plant in a shift or in a day. Hence, even if the products are not sold and there is no in- flow of money, it is called the throughput of the plant. For a warehouse, throughput is the quantity that it can handle in an hour or a shift. Analytical formula for throughput is: ” Throughput = Sales Revenue ~ Variable Cost The above definition is the same as the definition of contribution used by people in finance. However, in conventional costing methodologies, variable cost includes the other costs such as labour and transportation costs that are not the true variable costs. In TOC, only the truly variable cost is considered that is the material cost only. 2. Inventories , It is the money invested by the organization to earn throughput. It includes raw-material inventories, work-in-process inventory, finished goods inventories, buildings, plant, etc. However, the cost of work-in-process inventories includes the cost of raw material only, and not the allocated ope- rating expenses on to that component. Similarly, the value of the finished goods is not the total cost of the product, but only the cost of the raw mate- tial. In conventional costing methodologies, cost of inventory includes the cost of workers as well. 3. Operating Expenses It is the money spent to convert all inventories into the finished product and ultimately into throughput. This includes salaries of workers in the plant, employees working in offices, transportation costs, telephone bills, etc. In conventional costing methodologies, labour and transportation costs are the variable cost, but in TOC, these costs are treated as Operating Expenses. The above changes in the allocations of the various costs may look very simple and minor. However, these are the basic reasons that converted loss- making companies into profit-making ones in a small duration of a few6 Tuwory oF Constransts weeks to a few months. (Detailed examples of this are discussed in Chapter 2, Finance and Measures.) 1.1.5 Need for New Performance Measures The conventional costing methodologies are totally isolated and do not consider the practicalities on the shop floor. Similarly, the financial measures of the business also do not portray the correct picture of the business and shop floor activities. When Dr. Goldratt saw finance amd costing personnel making terrible decisions on the basis of allocation of the casts to the various activities of the shop floor, he felt the need to devise certaim measures that would compare bananas with bananas only, and not with eranges. The following are some examples of how the costing and financial measures are wrong from the TOC point of view: Inventories Jn conventional financial measures, only value of the inventory is considered for comparison of performance reviews. For example, a company sets the inventory norms for a sales person and the inventory value is reviewed at the end of every month. In this case, the sales person keeps the inventory as minimum possible at the end of the month, but after that, he immediately increases it to serve his customers better. However, in TOC measures, inventory is measured as Inventory Dollar Days, ie. value of the inventory * the number of days for which the inventory is held. In this case, even if the sales person will increase inventory after the Teview, it will be reflected in the final measure. Delayed Delivery In conventional measures, the delay in deliveries is calculated as an average delay in number of days. For example, Table 1.1 shows four orders that are delayed. The average delay is 15.7 days. ‘Table 1.1: Delay in Order Completion Sr.No. Order No. Delay in No. of Days 1 110011 30 2 112368 20 3 125988 5 4 121544 8 Average Delay 15.7 | | | eeants, pter ties auld are om re ‘PunkinG Parocess Now, if the same scenario is analyzed from the TOC point of view, it reveals a different picture. Table 1.2 shows the calculations for Throughput Dollar Days (ZD.D.). Table 1.2: Calculations for TDD Lost Ne Order No. re Eero TDD Lost 1 (roori 2,000 30 60,000 2 ]r12368 1,000 20 {20,000 3 [125988 6,000 5 30,000 4 |raisag 10,000 8 80,000 [Average Delay 1,90,000 The analysis results are: Net Throughput Dollar Days Lost ¥ 1,90,000 Average Throughput % 4,750 Average Delay > 40 While the conventional measure showed an average delay of 25 days, it is shown as 40 days by the TOC method. Thus, TOC measures give a totally different meaning to conventional measures. 1.2 Tools of TOC As discussed earlier, TOC is the technique that provides rapid improvement in the bottom line performance of the organization. This is achieved without any major investments unlike conventional problem-solving techniques. What are these tools of TOC that enhance the business? 1. Five-step Methodology (used on shop floor applications). 2.+ Strategic Thinking Process. 3. Drum-Buffer-Rope Scheduling (for scheduling of the constraint resource). 4. Critical Chain Project Management. The above tools are used depending upon the requirement of the business or the type of problem. Five-step Methodology As the name suggests, this method includes five steps, which are used when the constraint is a physical one. The various steps are as shown in figure 1.4.AMEOKY UF CONSERAINTS Identity HIRE Figure 1.4 Five-step Methodology The above steps are explained in detail, with an example of a factory manufacturing steel utensils. The various operations are shown in figure 1.5. Deep Drawing Figure 1.5 Process Flow Diagram Utensil manufacturing involves three basic processes—blanking, deep drawing and spinning, The installed capacity of the factory was 10 tons perday. However, the actual production varied from six to nine tons per day, with an average production of seven tons per day. Despite making lots of efforts for the optimisation of all three departments, there was no marked improvement in production. With reference to this problem, the Five-step Methodology can be explained as follows: 1. Identify During this stage, one needs to identify the constraint in the manufacturing: line. Any machine can become a constraint because of its mechanical problems or some policies of the organization. At the time of installation of the plant, it is always balanced, i.e. capacity of all the machines is always same and theoreti-‘TuinKiNG Process 9 cally, the line is always balanced. There are certain ways to identify the constraint machine in the plant. A few of them are: a. Identify the machine in front of which there is always a big heap of work- in-process inventories and/or a machine that has a very low inventory in front of it. . Identify the department that attracts maximum overtime. c. Ask the expeditor which machine or department he runs mostly when there isa delay in delivering the order. Ananswer to the above simple question will automatically point the finger towards the constraint resource or machine. In the case under study, to identify the constraint machine, work-in-process inventory data was analysed and maximum inventory was in front of the deep drawing press shop. There was no work-in-process inventory in front of the spinning shop. Hence, the deep drawing process was identified as a constraint resource. 2. Exploit Once the constraint resource is identified, the next step is to exploit it, i.e. extract from that constraint as much as you can. This is similar to increasing the strength of the weakest link in a chain. If there is a 10 items per hour increase in the production capacity of the constraint machine or resource, capacity of the plant will also increase by 10 items per hour. In the same way, if production on constraint resource is lost by 10 items per hour, the whole plant loses the production by 10 items per hour. . ‘We can conclude that a rise in the productive capacity of the constraint * machine results in the immediate rise in the plant capacity by the same amount. Similarly, loss of the productive capacity of the constraint machine is the loss of the plant by the same amount. By this principle, the second step of the methodology concentrates on the optimization of the productivity of the constraint resource. It does not consider any other machine for productivity enhancement. The various reasons why a constraint machine loses its production could be listed as: Material a. Non-availability of the raw material. Hence, machine stops frequently. b. More rejections in the incoming raw material. ¢. Too much re-work involved. Man a. Skilled workers are not available. b. Workers are inefficient. c. Frequent absenteeism of the workers. mYMachine a. Machine does not function properly. b. Frequent breakdowns. c. Installed capacity of the machine itself is less than requirement. Other Factors a. Frequent electricity breakdowns. b. Unhealthy work environment. c. Too much time lost during shift change. At the time of exploitation of the constraint machine, one should study all factors that raise the productive time of the machine, thereby increasing the productivity of both, the constraint machine and the plant, without any major investments. In the case under study, further analysis was done of the deep drawing press shop, which was identified as a constraint machine. Data was collected from the press shop. The study was conducted for an eight-hour shift time and it was found that 98 out of 480 minutes were non-productive due to different reasons. 10.20% Figure 1.6 Time Lost on Constraint Machine Figure 1.6 shows the distribution of the non-productive time of the constraint resource, i.e. the deep drawing press shop. The figure indicates that more than 60 per cent of the non-productive time of the resource was only due to non- availability of raw material for the machine. Further study was done to find out the material flow from blanking to deep drawing shop. It was observed that blanking had sufficient stock of inventories to supply to the deep drawing process, but due to the poor information flow from deep drawing to blanking, there were delays in supplying raw material. This ultimately resulted in theTHINKING PROCESS n Joss of production during that time. Hence, the solution to the problem was improvement in the information flow between the two departments. After this development, the non-productive time of the machine came down by 60 minutes, which was 15 per cent of the total productive time. This increased the production of the constraint resource and ultimately also of the plant by 15 per cent. Thus, without any major investment, in less duration, TOC helped to increase the throughput of the plant significantly. 3. Subordinate This is an important and critical step after the exploitation of the constraint resource, Simply put, subordination is to make other resources walk with the new speed of the constraint resource. This is essential, as the speed of the constraint resource goes up after exploitation. If the other resources do not work with the new speed, they may become the constraint resource and the plant may not achieve the desired rise in production. In the case study, after exploration of the deep drawing shop, there was an immediate need to match the capacity of all resources of the manufacturing chain. 4. Elevate ‘The basic purpose of elevation is similar to exploitation, i.e, increase the capacity of the constraint resaurce. After exploitation, if the resource remains constraint, then it needs to be elevated. This is done by increasing the capacity of the constraint resource by installing an additional machine. However, cost of elevation is more than the cost of exploitation. 5. Return to step 1—do not allow inertia Once the constraint resource is optimized completely till the constraint shifts to some other resource, the next step is to return to step 1. One should not allow inertia to arise in the process of ongoing improvement. Inertia here would mean halting at step 4, but constraint never can be eradicated; it keeps shifting*irom one resource to another. Therefore, it is necessary to identify the next constraint. In the above case, after overcoming the constraint, i.e. deep drawing shop, all departments were visited again to identify the next constraint, which was the spinning shop. Thus, TOC’s Five-stage Methodology works. 1.3 Where is TOC applicable? After reading The Goal, people formed some wrong notions about TOC. The book is based on manufacturing environment; therefore, most people thought12 THEORY “Oban HAN 9 that TOC is applicable only in the manufacturing environment. However, Dr. Goldratt tested it in various areas of business. This application was for profit environment only, but today, it is also applied to non-profit organizations like schools, colleges, hospitals, etc. Some other key areas where TOC can be applied are as follows: Operations Distribution and Supply Chain Finance Sales Marketing Human Resource Department Project Management al sak ted ad tac 1. Operations Operations denote the shop floor operations of any manufacturing organization. The basic objective is to identify the constraint resource on the shop floor and then exploit it to acquire maximum progress in throughput. Conventionally, managers and executives attempted to optimize the performance of all machines ‘or departments. However, in the TOC approach, only the constraint resource is identified and all efforts are concentrated on it, instead of spending money on all resources. Drum-Buffer-Rope is an important solution applicable in shop floor scheduling. It manages the scheduling of the capacity constraint resource and makes all other machines work at its speed. This ensures that only the required material is issued on the shop floor, and the machines do not work on unnecessary jobs. It helps in reducing the work-in-process inventory as well as the ‘manufacturing lead-time. 2. Distribution and Supply Chain The conventional supply chain approach is the cost approach, i.e. the basic goal is to keep the cost of supply chain as minimum as possible. A highly effective supply chain ensures the supply of the required product at a controlled cost. However, it is not a profit-oriented supply chain—it does not ensure the desired profit level. TOC helps to enhance the performance of the whole supply chain, starting from the raw material to the stage in which it reaches the consumer. It helps in identifying the constraint in order to deliver the right product at the right point at the right time in the required quantity. TOC has developed some specific solutions to the distribution problems of the Fast Moving Consumer Goods. These solutions help in reducing the finished goods and raw material inventories from the supply chain, while‘TuinkiNG Process decreasing the lead-time. The TOC supply chain also considers sales, marketing and finance as a part of the supply chain. 3. Finance ‘TOC’s finance application considers the following areas: 1. Judgment of the system as a whole. 2. Judgment of investment in equipment. 3. Judgment of make or buy alternatives. 4, Judgment of product and service profits, ‘Wrong decisions in the above cause the organization big losses. Currently, the above evaluations are made in isolation and individually, instead of considering the constraint resource. TOC takes all these decisions considering the constraint resource on the shop floor. It has proved that foss-making companies can become profitable within a very small time span. (The details of application of TOC concepts in finance are discussed in Chapter 2, Finance and Measures.) 4. Sales Conventionally, sales policies are decided according to the gut feeling of the sales manager. However, in TOC, sales solutions, the market constraint and manufacturing constraint are considered while making decisions on various trade schemes for the product or price of the product. Conventional sales-base is dumping or up-stocking of the goods to the distributors, dealers and wholesalers. But TOC sales policies/solutions work on the replenishment of the finished products at every stage of the sales link. This proves beneficial to the organization. 5. Marketing Conventional marketing strategies are based on various consumer offers that are made to buyers so that they purchase the product. Indirectly, this means that the manufacturer is reducing his value perception of the product. TOC’s marketing strategy is based on the principle of “increasing the value perception of the customer or consumer to the value perception of the manufacturer.” This makes the consumer pay more and the company does not lose revenue. 6. Human Resource Department In Human Resources, TOC’s major role is the goal-setting and performance measures of the employees. A human being behaves the way his performance is measured. Sometimes, it so happens that unknowingly the performance measure of a person is set in such a way that he becomes a constraint for the organization. TOC makes sure that the behaviour of any employee does not14 THEORY OF CONSTRAINTS become a hurdle in the company’s goal. This is achieved by deriving his performance measurement based on Throughput. A throughput based performance makes a person work towards achievement of the throughput for the organization, i.e., the performance measure of a sales person should be THROUGHPUT eamed and not the SALES ALONE. 7. Project Management The conventional approach of Critical Path Method of project management is very effective when more resources are available. However, it fails to complete projects as per schedules when there are resource constraints. Also, this method is based on the cost of the project, which is the biggest concern. TOC has its own concept of Critical Chain Project Management for project scheduling. In conventional project management techniques, only the critical path is monitored meticulously. TOC’s Project Management technique considers the inter-dependency of the various-activities as well as multitasking of the resources. This gives the longest chain of the dependent activities, which is known as the Critical Chain. These major changes in the project management reduce the project completion time drastically with a marginal rise in the cost of the project. 1.4 What is a constraint? Before we start with the next session on TOC and its various applications, we must understand what a constraint is. It is any element that doesn’t permit an individual or an organization to achieve the desired goal. Constraints can be classified as follows: . > Depending on the type of constraint: = Physical Constraints = Policy Constraints > Depending on the location of the constraint: = Internal Constraints = External Constraints Physical Constraints Any constraint that is visible to the eyes and is tangible, is a physical constraint. E.g. machines, transporters, suppliers, etc. A physical constraint can be measured in terms of the loss of production or loss of throughput due to that constraint, ie. capacity of a machine. Physical constraints are very easy to identify, but occasionally, very difficult and expensive to overcome. Achieving the desired results can also be time- consuming. There exist certain methodologies to identify physical constraints, as wellTuinkinG Process 15 as the level of improvement that can be achieved after the improvement over the physical constraint. Policy Constraints This kind of constraint is invisible and intangible. In most firms, a policy constraint is the biggest constraint. Certain rules, policies and mindsets of people are examples of policy constraints. One cannot recognize these constraints easily. Identification of solutions to policy constraints is also very difficult and time- consuming. However, the execution may not be time-consuming. In some cases, the physical constraints may be due to some policy constraints. A change in policy results in elimination of the physical constraint from the chain. Figure 1.7 indicates locations of the constraints in any kind of business environment. Extemal Constraints Internal Constraint Market Vendors Manufacturing Figure 1.7 Constraints Classification Internal Constraints Manufacturing This is an internal constraint in an organization. If a company has sufficient raw-material supply from vendors and yet it is not able to fulfil the market demand, then the constraint is in manufacturing. Nevertheless, it is very easy to exploit this constraint as it exists internally, and the organization has the resources and authorities to do the needful. External Constraints Vendors Vendors are the extemal people who offer inputs to the organization at anypoint im the supply chain. It could be a raw-material supplier or a transporter wio provides his trucks to transport the finished goods. This is the area where any company is faced with several constraints. A firm that produces cars using hundreds of components will have more possible constraints that will keep changing from time to time. Market When the market demand is lower than the supply capacity of an organization, then the constraint is in the market. This can happen due to various reasons such as competition in the market, no demand from consumers, etc. 1.5 TOC's Thinking Process and the Human Being The conventional problem-solving approach is to attack individual problems and then try to boost the overall business performance. All departments doing poorly are asked to improve their performance. Some problems faced by any business are: 1. High transportation costs. Excessive damages. Low profits. Frequent changes in production planning. High inventories in depots. toes oes auth ‘Acompany will try to solve the above problems independently. However, despite great efforts by concerned managers, the improvement will not be up to the expected level. The TOC Approach The TOC approach towards such a situation is totally different. According to TOC, the above problems are mere symptoms of the core problem. TOC attempts to solve the core problem only, resulting in exponential improvement in the business performance. ‘This concept can be understood with the example of a human body. A person may suffer from different ailments like fever, body ache, weakness, etc. The doctor treats the above disorders as symptoms of some disease such as the +flu or malaria, which essentially is the core sickness. The cure or medicines are given for the flu or malaria. Similarly, in TOC, the problems in a business are treated as symptoms only. Instead Of searching for independent solutions to all problems, it identifies the core problem and imparts solutions to it. Once the core problem is solved, al] other problems are taken care of within a short time span. Moreover, the results are gained without any major investments. TOC * uuses a tool called the Thinking Process to achieve this improvement.THINKING Process 17 TOC’s Thinking Process The Thinking Process was developed by Dr. Eli Goidratt to solve the qualitative and policy-related problems and constraints of an organization. After developing the Five-Step Methodology and implementing it successfully in hundreds of organizations, Dr. Goldratt realized that despite solving the physical constraints of a company, there are times when the organization is not able to achieve the expected bottom line improvements. This was basically due to the shifting of constraints from physical to non-physical, 1.e. policy constraints. This is when Dr. Goldratt came up with the Thinking Process. The Thinking Process is the process of logical thinking through which an attempt is made to identify the core problem of the business. The core problem is nothing but a policy constraint or an inappropriate mindset of the working people, due to which they follow some wrong practices. The Process states that there are always only one or two core problems underlying all problems faced by any firm. 1.6 Terminology used in the Thiwking Process 1. Tree: The set of logical relations between various facts of the business is called the Tree. 2. Entity: In Current Reality Tree and Future Reality Tree, each block containing a statement is called an Entity. ‘Connector: The lines joining the two entities are termed as Connector. 4, Arrow: The point drawn at the end of a line is cailed an Arrow. It indicates the direction of the entities’ dependency. 5. Undesirable Effect: It is the event which is not desirable on the way of achieving the company’s goal. ¥ 1.7 Steps to implement the Thinking Process Implementation of the Thinking Process takes place through various steps. It uses five logical thinking tools, one sub-tool (Negative Branch) and a set of rules (Categories of Legitimate Reservation) to build the logical diagrams Basic Logical Tools 1. Current Reality Tree 2. Conflict Resolution Diagram or Evaporating Cloud. 3, Future Reality Tree 4, Prerequisite Tree 5. Transition Tree18 Tueory oF Constraints Figure 1.8 shows the flow of the five logical tools as an integrated process. Current Reality 2 pis What to change ? Conflict Resolution Diagram What to change to ? Future Reality Tree. Prerequisite Tree How to cause the change ? Transition Tree Figure 1.8 Logical Flow of Various Trees The above figure illustrates that the Thinking Process is a process of ongoing - improvements. In TOC, this is called POOG!—Pracess Of On Going Improve- ments, Sub-tool—Negative Branch ‘One sub-tool used in the Thinking Process is called the Negative Branch, which is applied while building the Future Reality Tree. It reveals the possible negative effects of the new proposed solution to the core problems of the organization. Logic Rules—Categories of Legitimate Reservation ‘The set of logic rules used to build the trees is called the Categories of Legitimate Reservation. These rules aid in building more precise trees, i.e. Current Reality Tree, Future Reality Trée. Categories of Legitimate Reservation help: 1. To construct the logical flow diagram 2. To evaluate the logic developed by others.THINKING Process 19 The Categories of Legitimate Reservation can be listed as: Clarity Entity Existence Causality Existence Cause Insufficiency Additional Cause Cause-Effect-Reversal Predicted Effect Existence Tautology Ser aAVeeno 1. Clarity Conventionally, communication is done either verbally, or in the form of a written description. However, in the case of TOC, only logical diagrams, i.e. Current Reality Tree, Future Reality Tree, are the only ways to communicate an analyst’s point of view. Therefore, there ought to be clarity in the statements written by analysts of the Current Reality Tree. Additionally, without clear words or statements, logical relationships cannot be checked. There has to be clarity in the logical relationships between the two entities. While building the Current Reality Tree or Future Reality Tree, one must make sure that: a. An individual will be able to understand the statements. b. The Tree must communicate the meaning of the idea. c. There has to bea clear connection between the cause and effect relationships. Figure 1.9 indicates the wrong logical relationship from the clarity point of view. We lose sale due to stock outs in depots. Figure 1.9 Wrong Analysis In the above relationship, there is no clarity and itis not acceptable for drawing the logical entity. In the same entity, the analyst has tried to explain the two different events. Figure 1.10 shows the same relationships in a clear manner, acceptably communicating the analyst’s viewpoint.We lose sale. There are stock outs in depots. Figure 1.10 Correct Analysis The above relationship can be read as: “If there are stock outs in depots, then we lose sale.” 2. Entity Existence In TOC, Entity means the rectangular blocks containing statements written inside it. However, for the block to be an Entity, it must meet certain criteria; otherwise it will only be a block and will lead to some core problem. The essential requirements are: a. The idea proposed in the block must be valid. Whenever possible, the analyst must present data supporting the validity of the statement. For example, when the analyst says that sale is lost due to stock outs in the depots, there needs to be mathematically supporting data. Otherwise, the whole Current Reality Tree will lead toa wrong direction, If supporting data is not available and the statement is qualitative, then it can be accepted as a true statement. But for instance, if the analyst says, “Mangoes are available throughout the year,” then such a statement will not be considered valid and true. b. Thesentence must be grammatically complete. “Sale lost” is not a complete sentence; it should be written as “Sale is lost.” c. The sentence must be simple. Complex sentences may be interpreted incorrectly by the reader. “Ifit is raining heavily, then I will not be able to go to the market” is a complex sentence. its simpler version is: 1. “It is raining heavily.” 2, “L will not go to the market.” The two sentences are two different entities and will be connected by the connector.TuinkinG Process 21 Figure 1.11 gives an example of wrong entities from the Entity Existence j point of view. Increased Operating incomplete grammatical sentence A Expenses. Operating Expenses go up | B and cost of product also | Complex idea. goes up. Mangoes are available | Idea conveyed does not exist in reality c throughout the year. Figure 1.11 Wrong Entities In the above figure: > Entity A is incomplete from a grammatical point of view. > Entity B represents a complex idea. > Entity C represents an idea that is invalid and does not exist. The above entities are corrected in figure 1.12. A Operating Expenses are Grammatically complete sentence increasing. reese Simple Idea. c Mangoes are available in Valid idea. the summer. Figure 1.12 Correct Entities22 Turory oF Constraints > Entity A is a grammatically complete sentence, Entity B represents the idea simply after splitting into two entities, ft can be read as: “If Operating Expenses go up, then the cost of product also goes op > Entity C represents a valid idea. 3. Causality Existence While building the Current Reality Tree, it is essential to have correct connections between the two or more entities. Wrong connections lead to a wrong Current Reality Tree and the core problem. Causality Existence is the test that determines the connections between entities. It checks the basic requirement of the cause and effect relationship—the relationship between. entities has to be direct and unavoidable. “Direct” meaning, there should not be any other missing cause for the proposed effect. “Unavoidable” suggests that the effect must not be avoidable, The two basic requirements are explained in figures 1.13 and 1.14. The formes illustrates the cause-effect relationship that does not fulfil the requirement from the Causality Existence point of view. It says, “If we do not supply products on time, we lose the market share.” We lose the market share. We do not supply on time. Figure 1.13 Wrong Cause-Effect Relationship The above cause-effect relationship does not satisfy the Causality Existence. The effect is not the immediate effect of the cause given. Figure 1.14 indicates the correct cause-effect relationship. It states, “If we don’t supply on time, then the customer will buy from the competitor” and “If the customer buys from the competitor, then we lose the market share.”“THINKING Process 2B We lose the market share. Customer buys from competitor. We do nat supply on. time. Figure 1.14 Correct Cause-Effect Relationship 4. Cause Insufficiency This Category of Legitimate Reservation is self-explanatory. In the above cause- effect relationship, we saw that only one cause was sufficient to produce the effect. However, sometimes a situation requires more than one cause to attain the desired effect. The relationship between cause-effect is so strong that in the absence of any cause, the desired effect will not take place. This type of relationship is very crucial, as solutions to any of the causes will not allow the undesired effect to take place. Figure 1.15 is an example of the cause-effect relationship that does not satisfy the Cause Insufficiency rule. It states: “If mortality rates of birds are high after 30-35 days, then mortality rates are high ‘on our poultry farms.” Morfality rates are high on our poultry farms. Mortality rates of the birds are high after 30-35 days. Figure 1.15 Cause Insufficiency24 ‘Tueory oF CONSTRAINTS In the above relationship, the cause is not sufficient to produce the effect. Figure 1.16 explains the correct cause-effect relationship between the entities. It says, “Tf mortality rates of the birds are high after 30-35 days, and birds are held for more than 35 days, then mortality rates are high on our poultry farms.” This means that to get the effect, “Mortality rates are high on our poultry farms,” it is necessary to have two causes: “Mortality rates of birds are ‘high after 30-35, days” and “Birds are held for more than 35 days.” In the absence of any of the causes, the effect will not take place. Mortality rates are high on our poultry farms. Mortality rates of the birds are high after 30-35 days. Birds are held for more than 35 days. Figure 1.16 Cause Sufficiency There are some tests to check for the above rule: a. Ask yourself, “Is this cause sufficient to produce the effect, or is something additional required?” If the answer is yes, then one has to find the additional cause to get the effect. b, Re-read the cause-effect relationship built by you, and ask yourself: “What will be the effect if I remove one cause? Will the effect remain same, or will it change?” If the answer is ‘the effect will change’ then the relationship is right, if the answer is ‘the effect will not change’, i.e. removing cause will not change the effect, then the cause is not required. 5. Additional Cause This is the cause that increases the intensity of the effect. In its absence too, the effect takes place, but the intensity is slightly less. Here, the Additional Cause may be produced using more than one cause and connected by the ellipse or individual Additional Cause also may be there. Figure 1.17 shows the cause-effect relationship without Additional Cause. It states: “If the cost of production goes up, our profit comes down.”‘TutnkInG Process Our profit comes down. Cost of production goes up. Figure 1.17 Cause-Effect Relationship without Additional Cause In this example, one cause, “Cost of production goes up” is sufficient to produce the effect, “Our profit comes down.” However, there is one Additional Cause also that contributes to the magnitude of the effect. This is shown in figure 1.18. It explains the additional cause, “Customers are pressurizing us to reduce the prices.” So one reason for reduction in profits is rise in production costs. Customers are also pressurizing to reduce the prices. Thus, the second cause increases the intensity of the effect. Our profit comes dow Cost of production goes up. Customers are pressurizing to reduce prices. Figure 1.18 Cause-Effect Relationship with Additional Cause 6. Cause-Effect-Reversal Sometimes, while expressing an idea, the analyst may, write the cause-effect relationship in the opposite way, i.e. instead of cause, effect is written and vice- versa. Theoretically, one might feel this as an impossible situation, but it happens if entities are written without proper attention. Figure 1.19 shows such a wrong cause-effect relationship. It says, “If fail in mathematics, then I am weak in mathematics.” The cause-effect relationship is written in the reverse manner. It should instead be, “If I am weak in mathematics, then I will fail in mathematics.” This relationship is indicated in figure 1.20.{am weak in mathematics. Figure 1.19 Wrong Cause-Effect Relationship I failin mathematics. Figure 1.20 Correct Cause-Effect Relationship 7. Predicted Effect Existence It happens when one cause has more than ome efifect. In such a condition, it is necessary to have all the possible and valid efffects im the Current Reality Tree. These effects will be predicted effects, as it will happen, in case the cause takes * place. An example will make the rule clearer: If you come to a town and see a Jot of water on the road, as well as water flowing down from building roofs, what will you conclude from this? You will reckon that before your arrival, there was heavy rainfall in that area. You did not witwess the rainfall, but you conclude so after seeing the water. The purpose of predicted effect is to verify the existence of an intangible cause. 8. Tautelogy Sometimes, while building the cause-effect relationship, it so happens that both have a circular reference, i.e. activity Il happened as activity I happened, and activity I happened as activity If happened, Tautology is also known as circular reasoning. Figure 1.21 explains such a circular relationship. It can be read as: a. Ifold machines are inefficient, then Operating Expenses are high. b. If Operating Expenses are high, then profits are low.‘TuinkinG Process 27 Lack of funds for machine automation. High Operating Expenses. fH Old machines are inefficient. Figure 1.21 Tautology c. If profits are low, then there is a lack of funds for machine automation, 4. If funds are unavailable for machine automation and if machines are inefficient, then Operating Expenses are high. ‘These are the various rules that have to be followed while building the Current Reality Tree and Future Reality Tree. 1.8 Current Reality Tree Inorder to cure a disease, doctors need to diagnose it accurately. Proper diagnosis is the first and most essential step in order to prescribe the right medicine and then cure. If the doctor fails to identify the disease and gives the wrong medicine, the patient’s condition will deteriorate. Similarly, in an organization, itis essential to identify the core problem. The Current Reality Tree is a tool used for accurate identification of the core problem. It helps to define the problem clearly and precisely, so that solutions can be developed as per the requirement of the situation. The Current Reality Tree begins with the Undesirable Effects of the “organization. Through a logical thinking process, step-by-step, it reaches the “¢ore problem or policy constraint causing the Undesirable Effects in the28 TeoRY oF CONSTRAINTS Undesirable Effect #6 Undesirable Effect #5 Undesirable Undesirable Effect #3 Effect #4 Undesirable Effect # 2 Undesirable Effect #1 Figure 1.22 Current Reality Tree company, It tells us what to change, which is the first stage’ of the Five-step Methodology. This single policy or rule that the Current Reality Tree asks to change, cteates a great positive effect on the organization. Figure 1.22 shows the sample Current Reality Tree built using the Undesirable Effects. 1.9 Conflict Resolution Diagram This tool is designed to resolve conflicts between two opinions. In the conventional approach, whenever there is a conflict, the personnel try to solve itby making certain compromises. If there isa conflict between the sales manager and manufacturing manager, both compromise on certain issues and accept the solutions. However, according to TOC, “whenever there is a conflict between two opinions, only one opinion is right and other is wrong.” Hence, there should not be any compromise. Conflict Resolution Diagram is the logical thinking way to represent facts and assumptions regarding two conflicting opinions. It differentiates between the right and the wrong opinion. As there are no compromises with the wrong aTuinkinc Process 29 Why tolerate Solution 2? Conflict (Cloud) Solution 1. Why tolerate Solution 17 Figure 1.23 Conflict Resolution Diagram opinion, the firm achieves marked improvements in the performance. Once the Conflict Resolution Diagram is accepted by both sides, the conflict gets evaporated, Therefore, the Conflict Resolution Diagram is also known as the Evaporating Cloud. Figure 1.23 illustrates the skeleton of a Conflict Resolution Diagram. Types of Conflict When there is a pull between two different opinions, there is a conflict. The visible indicators for the conflict may be anger, hard feelings, altercations, etc. The clarity of this expression depends upon the intensity of the conflict and the nature of the persons having the conflict. There are two types of conflict: Opposite Conflict This occurs when the pull is in exactly opposite directions, Examples: > Implement E.R.P, vs. do not implement E.R.P:: In this conflict, there is no conscience concerning ERP. implementation. > Buy a car vs. do not buy car: The conflict here is self-explanatory. Different Alternatives Conflict This kind of conflict takes place when there are two different opinions between two people. Examples: > Implement BaaN vs. Implement SAP: There is a conscience regarding the ERP, but not the package. One force wants to opt for BaaN and another wants to go for S.A.P.30 Tutory oF Constraints > Buy Maruti 800 vs. TATA Indica: The conflict is regarding the model of the car. The complexity and efforts required to resolve the conflict depends on the situation and not on the type of conflict. 1.10 Future Reality Tree Once the Current Reality Tree identifies the core problem and the Conflict Resolution Diagram resolves the conflict, the next step is to build the Future Reality Tree for the changes suggested. In the conventional approach, when a solution is suggested, a group of people discuss the possible positive and negative outcomes of the solution. Ifa person who is in favour of the solution, continues to list its positive points, and a person to whom the solution is not acceptable, points out the negative points, the solution is accepted or rejected finally depending on the power of voice. In some cases, a wrong solution is selected, after implementation of which, the company suffers. Even when a correct solution is chosen, due to some unexpected problems during implementation, the solution may fail. Such solutions may prove disastrous for a firm. ERP is one of the best examples of wrong solutions. In India, there are instances of some medium-scale companies that closed down after implementation of ERP. With the logical tool called Future Reality Tree, there is no scope of going wrong as it accepts logical relations rather than opinions of people. The Future Reality Tree helps in two ways: >. It logically builds the future of the proposed solutions. It clearly indicates the impact of the new solution on different areas of the business. So one can judge whether the proposed solutions are right or wrong. > The Negative Branch shows the possible negative impact on the ~ organization. This helps in developing the plan of action in advance to overcome the negative impacts, and ensures prompt implementation of the solutions without any problems. The Future Reality Tree, therefore, isa very critical stage in the Thinking Process implementation: Its structure is similar to the Current Reality Tree, Figure 1.24 shows a sample Future Reality Tree for a person who receives a job offer from another company. It indicates the benefits of the new job as well as possible negative loops in the offer, which he realizes only after preparing the Future Reality Tree.‘THINKING Process 31 140 My life-will be peaceful. ma Twill Rave stable life. t 420 Twill be in I willRave job Mumbai. security. "100 >) TwiltratTéave is job. Figure 1.24 Sample of Future Reality Tree (FRT) The above figure illustrates the Future Reality Tree for the decision: “I will not leave this job.” The various effects of this cause are: > If [don’t leave this job (100), then I will stay in Mumbai only (110). > IfI don’t leave this job (100), then I will have job security too (120). > IfI stay in Mumbai itself (110), then I will lead a stable life (130). > If [have a stable life (130) and job security (120), then my life will be peaceful (140). However, there is another side to the existing job—the drawbacks. These are represented in the same Future Reality Tree and are treated as the Negative Branch Reservation. Figure 1.25 shows the Future Reality Tree with the Negative Branches associated with the decision: “Not to leave this job.” The Negative Branch of the Future Reality Tree can be explained as: > HI don’t leave this job (100), and it pays less (150), then I am earning a very low salary (160). > If I need more money for higher education (170) and I have a low salary (160), then I won’t be able to afford higher education (180). > If can’t afford higher education (180), then I will not have better growth opportunities in the future (190).32 better growth oppodunities in ‘Trsory OF CONSTRAINTS (a) My life will be peaceful. Twilllead a stable life. t 720 Twi stay in Twill fave job Mumbai. security. 2, A WL ide | will THT Teave: oleae this job. Figure 1.25 Negative Branch of FRT ‘The option this person has, is to join the other company named XYZ. Here also, a Future Reality Tree can be built to determine the possible positive and negative outcomes of the accepted option. The Future Reality Tree for the second option is shown in figure 1.26. It can be read as: > IfTjoin the XYZ company (100), then I will eara 50 current salary (110). per cent more than my If [eam more (110), and need money for higher education (115), then Iwill be able to afford it (120). If highly-qualified people get excellent jobs (125), and I will be able to pursue higher education (120), then I will get an excellent job opportunity in the future (130).THINKING Process IfIjoin XYZ (100) and its location is far from home (135), then I will have to travel more (140). > IfThave to travel more (140), then most of my time will be spent in travelling (145). > If most of my time will be spent in travelling (145), and I need time to study (150), then it will be difficult to manage my studies (155). Thus, the second option also has some negative impacts on the person’s goal. However, the intensity of these negative branches is less as compared to the negative branches associated with the first option.Tit cor to manage my studies. Most or my time will be spent in- Twill eed more time to study. Twat join XYZ. Figure 1.27 Negative Branches of the Second Option of FRT ‘Trimming the Negative Branches ‘The solution should not be dropped simply due to the presence of the Negative Branches in the solution developed. The purpose of the Future Reality Tree is to peep into the future and try to figure out the possible disasters that might hit the organization while implementing the new solution. In the aforementioned case, we saw that if the person accepts the new job, he will have to travel more. But this doesn’t mean that he should not consider the job offer—he needs to pursue higher education. After building the Future Reality ‘Tree with Negative Branches, we need to identify the solution to trim the Negative Branches. In the above case study, the possible solutions would be: > To buy or rent a new house close to the office. > To buy a vehicle that will reduce travel time, A feasible solution would be to buy a vehicle that will reduce the commute time and will also be useful to go to college. The effects of the same solution are explained in figure 1.28.Tuinkins Process 35 There willbe better utilization of time. I (140) 145) Traveling time to Travelling time to office will reduce. institute will be Jess. Buy @ vehicle to go to office and college. Figure 1.28 Solution to Negative Branching Effect The Future Reality Tree of the solution to Negative Branches can be read as: > If I buy a vehicle to go to work and college (135), then my travelling time to the office will reduce (140), as will my commute time to the institute (145). > If my travelling time to the office will be less (140), as well as travelling time to the college (145), then there will be better utilization of time (150). Consequently, the Future Reality Tree helps: 1. To determine benefits of the new solution. 2. To project possible negative effects of the solution, 3. To suggest preventive measures to the possible negative effects of the solution. 1.11 Prerequisite Tree After developing the Future Reality Tree, the next stage is to structure the Prerequisite Tree for the new proposed solution. This Tree helps in visuatizing the prerequisite factors to implement the proposed solution successfully. For this, there are certain requirements that can be listed as: 1. To identify the obstacles that may come in the way of implementing the proposed solution. 2. To find ways to overcome the obstacles. 3. To develop a plan of action for the execution of the new solution.36 ‘Tueory OF CONSTRAINTS The appearance of the Prerequisite Tree is totally different from the Current and Future Reality Trees, The structure of the Prerequisite Tree is shown in figure 1.29. The various objectives are connected to the main objective. The obstacles are also connected to the objectives. This indicates that the obstacles have to be overcome. The flow of events is upwards, as in the Future Reality Tree. Obstacle Objective Obstacle Objective Figure 1.29 Structure of Prerequisite Tree Figure 1.30 demonstrates a sample Prerequisite Tree for the production of medi- cine bottles, It can be explained as: Basic objective: > To produce complete packed medicine. Sub-objectives: > Require medicine to fill up bottles. > Require bottles and caps for medicine. > Require printed cartons for bottles. The obstacles while achieving the above sub-objectives and basic objective may be:‘Trankin PROCESS . 37 > Unavailability of bottles. > Unavailability of printed cartons. ‘These are the prerequisites for accomplishing the basic or main objective Producing the complete packed medicine, ‘Unavailtabilty of) printed cartons to pack bottles. There are bottles to pack the medicine. Unavailabilty of bottles to pack the medicine. There is sufficient raw material to Produce the medicine. Figure 1.30 Prerequisite Tree for the Production of Medicine Bottles 1.12 Transition Tree This is the last step during the implementation of the Thinking Process. It con- tains injections that must be accomplished. The difference between the Future Reality Tree and Transition Tree is that the former is just the validation of the idea or solution to the core problem obtained from Current Reality Tree. How- ever, the Transition Tree is the step-by-step plan of action for implementing the solution. Therefore, the levels of the Transition Tree are very important.38 ‘Treory oF Constraints Desired Effect. [Action required to Need to get the fea eset ee get thé desired effect. Desired Effect. Action required to) Need to get the i ° get the desired desired effect. mad Desired Effect. ‘Action required to| Need to get the adore Real get the desired effect. Figure 1.31 Structure of ‘Transition Tree Application of the Thinking Process Tools The aforementioned logical tools can be used as a complete set or indepen- dently, just like when drawing, one can use the complete drawing kit or only a couple of its tools. If someone is interested in resolving conflicts with his wife, then he may use the Conflict Resolution Diagram or Evaporating Cloud only. If a person wants to make a decision for the future, then he can use only the Future Reality Tree. 1.13 Three Cloud Method This is the latest development in the area of the Thinking Process. In the traditional method of building the Current Reality Tree, all the Undesirable Effects are linked to each other and a core problem is identified. This is a lengthy process to arrive at the core problem and core conflict. The Three Cloud Method first identifies the core conflict that is actually the core problem of an organization. The process of developing the Core ConflictTucan Process 39 Cloud/Generic Evaporating Cloud is explained as: Step I Prepare a list of the Undesirable Effects associated with an organization. Step Select any three Undesirable Effects from the list. They should be from totally diversified areas. Example: > Undesirable Effect 1: High transportation cost of finished products. > Undesirable Effect 2: Frequent stock outs of the raw material. > Undesirable Effect 3: Unpunctual workers. Step I1l—Preparing Evaporating Cloud From the above Undesirable Effects, the Evaporating Cloud is developed, the method for which is described below. Figure 1.32 illustrates the structure of the cloud. To fill up the blocks in the figure, the following questions should be asked, Answers to these questions should be written in the respective blocks Disturbing Action agsociated with Undesirable Effects. Why do you tolerate Action D? Common Objective What do you want to achieve through ‘Action D? ‘Action you wish to take. Figure 1.32 Structure of Evaporating Cloud » Block vb ‘What is the most disturbing action associated with the selected Undesirable Effect? This action is to be written in Block D. For example, for the Undesirable Effect “High Transportation Cost”, the most disturbing action is, “There is a lot of inter-depot transportation of the finished goods.” > Block D*: Here, an action exactly opposite to the action stated in Block D should be written. For instance, the opposite action of “There is a lot of inter-depot transportation of the finished goods” is, “There should be no inter-depot transportation of the finished goods.” > Block B: Why do we tolerate the action in Block D? Here, question forTurory oF CONSTRAINTS Figure 1.33 Developing Generic Evaporating CloudTuinkinc Process 41 Block B is, “Why do we tolerate the inter-depot transportation of the finished goods?” The answer to this question will be the statement for Block B: “We do inter-depot transportation because we do not want to lose sales due to stock outs.” > Block C: Which need are you trying to satisfy with the action stated in Block D’? Answer to this question will give the statement for Block C. Step IV—Developing Generic Evaporating Cloud Figure 1.33 shows how to develop the Generic Evaporating Cloud from the three Evaporating Clouds. To get the statements in the blocks of the Generic Evaporating Cloud, summarize the statements in each block, i.e. Al, A2 and A3, and develop a generic statement of A. Similarly, develop statements in blocks B, C, D and D’. The Evaporating Cloud formulated from the statements of the three clouds will resuit in the Generic Evaporating Cloud. Step V—Developing Current Reality Tree from Generic Evaporating Cloud After developing the Generic Evaporating Cloud, rotate it to 90 degrees clockwise, as shown in figure 1.34. Figure 1.34 Rotating Generic Conflict Cloud to get CRTAL Tueory of Constramts After rotating the Generic Evaporating Cloud, reverse the direction of the arrows connecting the blocks as shown in figure 1.35. Figure 1.38 Reverse the Direction of Arrows The next step is to do a rigorous root-cause analysis of the cloud. During this stage, the various causes have to be connected to the blocks. These may be: > Assumptions > Policies > Measures Figure 1.36 indicates the structural representation of the Current Reality Tree developed from the Generic Evaporating Cloud after linking the above three to the Generic Evaporating Cloud. ° o Ss c A Figure 1.36 Link the Assumptions to the Generic Evaporating Cloud (This is just a skeleton of a Current Reality Tree)See Tuinkine Process 4B The subsequent steps are similar to the conventional Thinking Process, i.e. Prerequisite Tree, Transition Tree, ete. Thus, we have seen that the Three Cloud Method develops the core conflict first and then the Current Reality Tree. The significant benefit of this method is that it is quick in identifying the conflict. 1.14 Solved Problem | it can be difficult to comprehend and implement concepts of the Thinking Process just by reading books on it. Therefore, in this book, we will discuss two different case studies from diverse areas, The problems faced by these organizations were generic problems faced by any company in that industry vertical. Hence, readers will be able to implement the Thinking Process in similar industry verticals, Starting from the Current Reality Tree till the Transition Tree, we will go through a step-by-step formulation of the logical trees. The first case study is based on consumer products. The company produces animal feed, which includes poultry feed as well, and selfs it through a structure of dealers. The firm was facing various problems, which it tried to solve through conventional solutions, but failed to achieve the desired results. However, after implementing TOC’s Thinking Process, the organization observed great | improvements: Starting with the problem, let's observe the key business processes: 1. Customer makes purchases from dealer shops in the city. 2. Dealers buy from the company. The firm’s salesperson is responsible for acquiring orders from dealers and supplying the required material. 3. The company has depots at district places, from where dealers are served. 4. The organization maintains stocks of finished goods in depots. These stocks are stored as per instructions from the sales person. 5. Depending on the stock position in the depot, the salesperson places orders with the manufacturing plant through the sales manager and manufacturing manager. 6. The plant manufactures as per the orders and then supplies to depots. The various Undesirable Effects associated with this case study were as follows: Excessive urgent orders for the plant. Frequent stock outs in depots. High transportation cost of the feed. Excessive cost of production. High finished goods’ inventory in the factory. High working capital of the business. Low market share, Nay eene44 . THEORY OF CONSTRAINTS 8. Delayed deliveries. 9. Too many order cancellations. The above Undesirable Effects can be linked to each other with some logical relationships between them. The process of developing the Current Reality Tree starts from this stage. From the above list, pick any two Undesirable Effects that are close to each other. Figure 1.37 demonstrates the relationship between such two Undesirable Effects (UDEs). ‘Low 1 share. 100 Frequent stock outs in depots. Figure 1.37 Relationship of UDEs Itsays, “If there are frequent stock outs in depots (100), then the market share is low (110).” However, as per Cause Insufficiency, it was clear that some action between the two UDEs was missing, and it needed to be pointed out in order to clearly express the relationship. Low market share. 705) Failure i Supplying to customers. Frequent stock outs in depots. Figure 1.38 Missing Action between UDEs Figure 1.38 reveals the modified relationship between the above UDES. It explains: > “If there are frequent stock outs in depots (100), then there is a failure in supplying to customers (105) > “If we cannot supply to customers (105), then our market share is low (110).” aeSy ‘THINKING Process 45 However, the relationship between Entities 105 and 110 needed some | Additional Cause. The cause-effect relationship has Cause Insufficiency. The share is low. (105\_ 106 Failure in Supplying Customer purchase to customers. ‘from our competitor: ¥ i (i008) Frequent stock outs in depots Figure 1.39 Cause of Stock Outs same cause relationship can be read as: “If we cannot supply to customers (105), and customers purchase from our competitor (106), then our market share is low (110).” The cause (106) is essential for the effect (110). This modified cause-effect (C-E) relationship is illustrated in figure 1.39. The most suitable UDE that can be connected to the Current Reality Tree is: “Most deliveries are late.” This means that most of the time, depots did not receive the required products on time. This is the immediate cause for the effect, “Frequent stock outs in depots.” This is shown in figures 1.39 and 1.40. Low market| share. (405), 106 We cannot suppiy| Customers purchase! to customers. from our competitor. 100 ; Frequent stock outs in depots. Most deliveries are delayed. ‘ Figure 1.40 Cause of Stock OutsAneury UF CONSTRAINTS We can read this relationship as: “If most deliveries thade by the plant are delayed (95), then there will be frequent stock outs in depots (100).” At this stage, let's have a look at which UDEs were not yet connected to the Current Reality Tree: Excessive urgent orders for the plant. High transportation cost of the feed. Excessive cost of production. High finished goods’ inventory in the factory. High working capital of the business, Too many order cancellations. From the above list, the most appropriate UDE that can be linked to the Current Reality Tree is, “Excessive urgent orders for the plant.” This is indicated in figure 1.41 that can be read as: “If there are too many urgent orders with the plant (90), and at this instance, demand is more than the capacity of the plant (94), then most deliveries made by the plant will be delayed (95).” avayye Our market share is low Tweed 105 106. We cannot supply, Customer Buys it to our customers from our competitor by Frequent stock outs in depots. dy "Most Geiiveries made by the plant will be delayed. 90 94 Too many t this instance, urgent orders with the demand is more than the plant. capacity of plant. Figure 1.41 UDE Connecting CRT The UDE, “Too many order cancellations” can be linked to the Current Reality Tree as shown in figure 1.42. It is the effect due to the cause, “Most deliveries made by the plant are delayed.” However, there is an intermediate Entity to represent the cause-effect relationship clearly. It can be read as:Twiki Process 47 > “If most deliveries made by the plant are late (95), and customers purchase from the competitor (106), then the customers cancel orders (115). > “If customers cancel orders (115), then the salesman cancels the order placed with the plant (120).” Salesman Conta The order i ; AiG placed with the plant. Low market aA share. fag As (Customers cancel orders. (0s) Failure tn supplying to customers. 100 Frequent stock outs in depots. ay (Customers purchase from our competitor. ‘Wost deliveries made by the plant are delayed. AK 90) cm There are too Many "At this Instance urgent orders on the demand is more than the | plant * capacity of plant, Figure 1.42 Linking CRT with Stock Outs The reason behind the UDE “High transportation cost” was the inter-depot transportation of products. This was carried out to meet demands from custo- mers, despite the stock outs. This relationship can be read as: 1. “If there are frequent stock outs in depots (100), and the salesman wants to meet the customers’ demands (125), then he tries to acquire the products from another depot where they are available (130). 2. “If the salesman tries to get the products from another depot (130), then there will be a need for inter-depot transportation (135). 3. “Ifinter-depot transportation takes place (135), then the transportation cost will increase (140).” This cause-effect relationship is illustrated in figure 1.43.8 Tawory oF ConsTRAINTS (440) cost sor depot tanisportation. Sales man cancels order ‘placed on the pant. ‘Salesian ties io acdice the products from nother depot 108, We cannot SUppiy tocustomess. (100) en Moat of ie acres riage by plat ar ae z o "Tee a oo any "ans instance urgent order on te demand is more than the plant capacty of plant Figure 1.43 Modified CRT Now, the UDEs not linked to the Current Reality Tree are: 1. Excessive cost of production. 2. High finished goods’ inventory in the factory. 3. High working capital of the business. Sometimes, it so happens that customers cancel orders, but the salesman does not get time to cancel the order placed with the plant. In such cases, the plant delivers to the depot and those products lie in the depot as inventory. If there is an immediate order for the same products, then they are sold; otherwise, the company is forced to hold them as inventory. In this manner, the finished products’ inventory in depots increases, This UDE is linked to the Current Reality Tree as shown in figure 1.44. It can be tead as, “If the salesman does not get time to cancel the order (140), then the plant makes the delivery as per the order (145). Now, the UDEs not linked to the Current Reality Tree are: 1. Excessive cost of production. 2. High finished goods’ inventory in the factory. 3. High working capital of the business.‘THINKING Process 49 Sometimes, it so happens that customers cancel orders, but the salesman does not get time to cancel the order placed with the plant. In such cases, the plant delivers to the depot and those products lie in the depot as inventory. If there isan immediate order for the same products, then they are sold; otherwise, the company is forced to hold them as inventory. In this manner, the finished products” inventory in depots increases. This UDE is linked to the Current Reality Tree as shown in figure 1.44. It can be read as: 1. “If the salesman does not get time to cancel the order (140), then the plant makes the delivery as per the order (145). 2. “If customers cancel orders (115) and yet the plant makes the delivery (145), then the finished goods’ inventory at depots increases (150).” Finished goods" inventory at depots increases. The plant makes the delivery 2 per the order. There is ainter ‘depot transportationt got time to cancet the order. We cannot supply I rs (106 >) oor egornes (Gustorners purchase products from our competitor. There are frequent slock outs in the depots} ‘Most of te deliveries made by plant are lat} ‘i "At this instance demand is more than the capacity of plant. There are tod many urgent orders on the| plant Figure 1.44 Linking UDE with CRT The last UDE faced by the organization, “High working capital of the business,” can be linked to the Current Reality ‘Tree. It is the effect of the cause “High finished goods’ inventory in the factory.” Figure 1.45 shows the relationshipAMEUKY OF CONSTRAINTS. 2 “If the finished goods’ inventory at between cause-effect, and can be read as: depots increases (150), then there will be a rise in the working capital of the business (155).” igh working capital ol} the busings. Finished goods inventory at Jdopdis increases, a5) The plant makes the deivery as per order There is anor depot transportationt [Salesman cenodls the ordor| {paced with the plant. [Salesman does noi] ‘et time to cancol she order. (20 ‘Sales Man tes [We can not supply] 1 our customers ‘Sales fan wants to meet the customer| demand Customer Buys it trom our competitor made by pant are tet 00) Art nce demand is more than the capacity of plant “There are too many ‘urgent orders on the| lant Figure 1.45 Linking Working Capital with UDE Figure 1.46 illustrates the complete Current Reality Tree for the above case,‘THINKING PROCESS SH ri Ba ety cz. osinctcee| Fa eo = pe * The plantmakes the Jdolvery as per the order. [Salesman does not ‘get time to cancel the order. inter depot tansporaton 20). [Salesmarr cancels the order ‘placed with the plant ‘Salesnian fies to 2cquire products fron another depet C05) ie caret ‘o.custoners, * raahent sn (25>) made by the pls — tare delayed. Excessive urgent orders with ‘te plant capacity of the plant. Figure 1.46 Complete CRT The Current Reality Tree can be discussed as: 1. “Ifthere are excessive urgent orders with the plant (90), and at this instance, the demand is more than the capacity of the plant (94), then most deliveries made by the plant will be delayed (95). 2. “If most deliveries are late (95), then there will be frequent stock outs in ~ depots (100). 3. “If there is failure to supply to customers (105), and they purchase from our competitor (106), then our market share will be low (110). 4, “Ifthere are frequent stock outs in depots (100), and the salesman wants to meet customers’ demands (125), then he tries to get the products from another depot where they are available (130). 5. “If the salesman tries to acquire the products from another depot (130), then will be inter-depot transportation (135).@) THEORY OF CONSTRAINTS 6. “If there is inter-depot transportation (135), then transportation cost will be high (140). 7. “If most deliveries made by the plant are delayed (95), and customers purchase products from our competitor (106), then customers will cancel orders (115). 8. “Ifcustomers cancel orders (115), then the salesman will cancel the order placed with the plant (120). 9. “If the salesman does not get time to cancel the order (140), then the plant will make the delivery as per the order (145). 10. “If customers cancel orders (115) and the plant makes the delivery (145), then the finished goods’ inventory at depots will increase (150). . “If the finished goods’ inventory at depots goes up (150), then the working capital of the business will be high (155).” Core Problem The Current Reality Tree demonstrates that the core problem of the organi- zation was the frequent stock outs at depots. This occurred because the company was working on the conventional model of forecasting techniques. TOC offered a generic solution for the above problem, i.e. to have regional warehouses and supply to depots from these warehouses. Figure 1.47 shows the conceptual layout of the suggested system. Figure 1.47 Conceptual Flow Diagram‘Taking Process 53 In the above distribution system, the finished goods will be sent to the parent warehouse and from there, as per the requirement, they will be despatched to the regional warehouses that will hold this stock as buffer stock. Depots will place their requirements with the regional warehouses and not with the factory. As regional warehouses will hold buffer stocks, they will immediately supply to depots. This will cut down the lead-time drastically. y oun NX Rope NX x x — x Regional A Warehouse Figure 1.48 Drum-Buffer-Rope Distribution System This proposed system is also known as the Drum-Buffer-Rope distribution system. Its schematic representation is shown in figure 1.48. However, there is a conflict with the proposed solution: > To opt for the Drum-Buffer-Rope distribution system, or > To improve the forecasting techniques used. The graphical representation of the above conflict is shown in figure 1.49, Opt for the Drum- Buffer-Rope distribution system. Improve the forecasting techniques. Figure 1.49 Conflict Diagram ‘To resolve this conflict, ask yourself the question: “Why do we tolerate the action stated in Block D (Why do we want to go for the Drum-Buffer- Rope distribution system)?” The answer to this question will give us the statement for Block B. The answers will reveal certain underlying assumptions behind tolerating the action in Block D or D’. Here, the answer to the question, “Why do we want to opt for the Drum-Buffer-Rope distribution system?” can be:34 ‘Txeory oF Constraints > It will reduce the supply lead-time drastically: > Due to buffer stocks at the regional warehouse, there will not be any load ‘on the factory. Hence, the statement in Block C can be written as shown in figure 1.50. » If the market demands are to be fulfilled (A), then there should be buffer stocks at various distribution points (B). > If buffer stocks have. to be at various distribution points (B), then the Drum-Buffer-Rope distribution system must be adopted. Thus, one side of the conflict is presented in the form of a logical diagram. ‘The next step was to complete the other side of the Conflict Resolution Diagram, ie. A~C-D’. This also led to the common objective. However, the suggested method to achieve it was different, Similar to the other side of the Conflict Resolution Diagram, supporters of the idea had to present the logical relationship between the suggested solutions and the common objective. ‘There should be buffer locks al various distribution points. Opt for the Drum- Buffer-Rope.

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