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The Goal: A Process of Ongoing Improvement
The Goal: A Process of Ongoing Improvement
The Goal: A Process of Ongoing Improvement
Characters:
Alex Rogo Plant Manager Jonah Physicist/Production Consultant Bill Peach Division VP of Manufacturing Bob Donovan Plant Production Manager Lou - Plant Controller Stacey Potazenik Production Control Manager Ralph Nakamura data processing manager
Setting:
City of Bearington location? Pennsylvania, Ohio, Indiana manufacturing town
Introduction: Whats your first impression of the manufacturing plant? Plant out of control VP of manufacturing expediting an order New robots Controlled chaos Good at fighting fires Excellent at getting order filled when pressed Lots of inventory
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What does Alex determine The Goal is? To make money!! How do you know you are making money (Alex and Lou)? Net profit (Income-Expenses) Return on Investment Cash Flow
How do the making money measures translate to the production environment? (Jonahs translation) Throughput Is the rate at which the system generates money through Sales Inventory all the money that the system has invested in purchasing things which it intends to sell. Operational Expenses all the money the system spends in order to turn inventory into throughput. 8
What was the common word in all three measurement definitions? Money going into the system Money stuck inside the system Money flowing out of the system
Throughput Is the rate at which the system generates money through Sales Inventory all the money that the system has invested in purchasing things which it intends to sell. Operational Expenses all the money the system spends in order to turn inventory into throughput.
Where do the following fit? Raw materials Direct labor Indirect labor Tooling, machines, building Knowledge gained by employees
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Alex meets Jonah in New York seeking help to determine steps to take in achieving the goal:
Jonah Do you run a balanced plant? Do you have any idle workers and is it good or not? Alex We try to keep all our employees productive
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Jonah Impossible to perfectly balance capacity to demand, there even exists a mathematical proof showing if you did, inventories go through the roof? Alex Hows this possible Jonah Due to two phenomenon: 1. Dependent events a series of events must take place before another begins. 2. Statistical Fluctuations the length of events and outcomes are not completely deterministic. The combination of these phenomenon are the 12 issue.
Q. - Where does Alex first come to grips with this (i.e. sees this first hand)? A. During the boy scout hike.
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Analyzing the boy scout hike Observations: the walking speed of individuals fluctuate All may have the same average walking speed, but gaps continue to lengthen, why? There is no limit to how much an individual can slow down, but your top speed is dependent on the person in front. Fluctuations are accumulating over time, and the slow fluctuations tend to accumulate faster because they are not limited like the fast ones.
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What is the average number rolled on a die? After 20 rounds, how many matches should the last player produce?
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Observation: however, everyone is always walking (no one is idle). But goal is not being achieved.
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Transfer (once/hour)
Weld (25/hour)
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Weld (25/hour)
Expectation:
noon Fabrication Welding 25 1:00 25 25 2:00 25 25 3:00 25 25 25 4:00
Weld (25/hour)
Realization:
noon Fabrication Welding
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1:00 21
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2:00 28 21
3:00
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4:00
25
100 25 90
Q. So what have they learned to this point? A. Have more capacity at downstream operations. Q. What does Jonah suggest they do next? A. Distinguish between bottleneck and non-bottleneck resources. Definition: Bottleneck any resource whose capacity is equal to or less than the demand placed upon it. Non-bottleneck any resource whose capacity is greater than the demand placed upon it.
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Jonah then suggests balancing the flow of product through the plant with demand from the market. Not to balance the capacities of operations with demand. Q. What determines the flow of product through the plant. The bottleneck resources. The next step for Alex and company is to identify the bottlenecks (i.e. find Herbie).
Q. So how do you find a bottleneck in a manufacturing plant? A. Go out on the floor and find the operation with the most inventory sitting in front of it. Q. Is having a bottleneck a bad thing? A. Not necessarily, all plants have to have a bottleneck.
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The next step for Alex and company is to identify the bottlenecks (i.e. find Herbie).
Q. Once the bottleneck is identified, can you simply move the machines/operations around like Herbie was moved to the front of the line? A. No, production steps often cannot be reorganized. Q. So how do you solve the problem of moving Herbie to the front? A. Find more capacity for the bottleneck, dont try to move them. Have enough capacity to meet demand.
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The next step for Alex and company is to identify the bottlenecks (i.e. find Herbie).
Back to the story: Q. Where does Alex and company find the bottleneck? A. They find two bottlenecks, NCX-10 and Heat Treat Q. What is thier first approach to improving the flow through the bottlenecks and ultimately improving productivity. 1. Move QC in front of bottlenecks. 2. Make a list of all late jobs and what components from those jobs flow through the bottleneck machines. They then create a schedule/list in due date order and instruct the bottleneck operators to only work on those jobs in that order.
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Jonah believes the new bottlenecks are not real bottlenecks, but self-created bottlenecks. Why? A. Material is being released to the plant just to keep the nonbottleneck machines busy. This improves these machines efficiency measures, but does not help the goal.
Jonah: A system of local optimums is not an optimum system at all; it is a very inefficient system.
Lesson: Do not try to make non-bottlenecks work all the time. They should be idle some of the time!
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So how do you go about fixing the problem of keeping the nonbottleneck machines working at the same rate as the bottleneck? Recall the boy scout hike: Herbie is in the middle of the line and cannot be moved, so how do you keep the kid in the front walking at the same pace as Herbie? Alexs kids: use a rope and a drum.
Rope: Attach a rope from Herbie (bottleneck machine) to the kid at the front (assembly). The length of rope represents inventory. Drum: Herbie tells the kid at the front to slow down or speed up (beats the drum). Need some kind of signaling or communication between assembly and the bottleneck.
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How is the rope and drum concept implemented in the plant? Identified it takes about 2 weeks from when parts are released to the floor until they get to bottleneck. Setup system that monitors when inventory is processed at the bottleneck. Material required 2 weeks later is then released to the floor. Non-bottleneck parts are released according using the same principle but tied to assembly.
Communicate release
Material Release
What is the result of this new release system? WIP is down. Revenues are up. Efficiencies dropped initially, but have come back up. The backlog of orders is completely gone (satisfied customers).
Happy Somewhat skeptical success will last Wants 15% more revenue next month!!
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In order to improve by another 15% what does Jonah suggest as the next logical step? Cut batch sizes for non-bottleneck parts in half.
What is the impact of reducing these batch sizes? WIP for non-bottleneck parts reduced by half. Significantly reduce time parts spend in plant. Leads to increased responsiveness (from 6-8 weeks to 3-4 weeks).
What about the time to handle increased number of setup? Doesnt matter if occurs on non-bottleneck operations.
Process Time Setup Time Queue Time Wait for Assembly Time 35
Also to help get the 15%, Alex calls the marketing/sales manager and bets him he can reduce lead time to fill orders. What does Alex expect to gain by reducing lead times to ship from what used to be 4 months to 4 weeks? Increased sales!! The bottleneck had moved to customer demand. Quick response on promised due dates should translate to a competitive advantage.
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Everything is going good now except it looks like part costs are going up. However, in reality all costs have gone down. How can this be? The accounting rules: Cost per part = raw material + direct labor + burden cost Burden cost is all the indirect labor costs. Burden = direct labor x burden factor Cost per part has risen because more setups are occurring because of smaller batch sizes. However, workers were idle, so the increased number of setups didnt really increase costs.
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What other performance measure made them not look as good as they actually were. Answer: Inventory
Inventory is counted as an asset on the balance sheet. When the plant worked hard to reduce inventories to improve their throughput and responsiveness, it looked as if their assets had fallen.
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Sacred Cows Slaughtered: Worker efficiency Optimal batch size Releasing work to the floor to keep people busy Accounting rules
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Cost
Throughput
Inventory
Inventory
Cost
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What process did they use to shift their focus to the throughput world?
Final words from Alex on how to be an effective manager: Help people to identify: what to change? what to change to? how to cause the change?
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What approach did Jonah use to help Alex and the plant succeed? Find the answers/solutions by asking questions, the Socratic approach. Let others convince themselves of the answers, dont just give it to them.
Also used a common sense approach which went against common practice. In other words, think!!
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