The goal is not to improve one measurement in isolation
So this is the goal: To make money by increasing net profit, while simultaneously increasing return on investment, and simultaneously increasing cash flow.
How to manage the 3 measurements:
that every company would want to have its throughput go up. Every company would also want the other two, inventory and operational expense, to go down, if at all possible.
Connecting the 3 terms to financial accounting
each one of those definitions contains the word money,” he says. “Throughput is the money coming in. Inventory is the money currently inside the system. And operational expense is the money we have to pay out to make throughput happen. One measurement for the incoming money, one for the money still stuck inside, and one for the money going out.”
Science is a method
Science for me, and for the vast majority of respectable scientists, is not about the secrets of nature or even about truths. Science is simply the method we use to try and postulate a minimum set of assumptions that can explain, through a straightforward logical derivation, the existence of many phenomena of nature.
We cannot learn with the answers at hand
I sincerely believe that the only way we can learn is through our deductive process. Presenting us with final conclusions is not a way that we learn.
What is productivity?
I have come to the conclusion that productivity is the act of bringing a company closer to its goal. Every action that brings a company closer to its goal is productive. Every action that does not bring a company closer to its goal is not productive.
How inventory builds up
“But, Stacey, you said the robots were producing a lot of parts for which we don’t have product orders,” I say. “That means we’re producing parts we don’t need.” “Everybody tells me we’ll use them eventually,”… Whenever efficiencies take a drop, everybody draws against the future forecast to keep busy. We build inventory.
Examples of operating expenses which might seem like investment
The problem is that everybody—including me until now—has thought these robots have been a big productivity improvement. And we just learned that they’re not productive in terms of the goal. The way we’ve been using them, they’re actually counter-productive.
Balanced plant: capacity = demand
“A balanced plant is essentially what every manufacturing manager in the whole western world has struggled to achieve. It’s a plant where the capacity of each and every resource is balanced exactly with demand from the market.
Cannot determine ahead of time
“Most of the factors critical to running your plant successfully cannot be determined precisely ahead of time,”… So what’s wrong with that? Nothing as far as I can see. Anyway, we don’t have any choice. What else are we going to use in place of an “average” or an “estimate”?
Put all components in similar speed
It’s starting to make sense. Our hike is a set of dependent events . . . in combination with statistical fluctuations. Each of us is fluctuating in speed, faster and slower. But the ability to go faster than average is restricted.
Limit the dependancy. Decrease the line length.
What’s happening isn’t an averaging out of the fluctuations in our various speeds, but an accumulation of the fluctuations. And mostly it’s an accumulation of slowness — because dependency limits the opportunities for higher fluctuations. And that’s why the line is spreading.
The last operation
And here I am at the end of the line. To make the total length of the line contract, I have to move faster than average for a distance equal to all the excess space between all the boys. I have to make up for the accumulation of all their slowness.
In reality
In the plant, we’ve definitely got both dependent events and statistical fluctuations.
The throughput / rate depends on the last operation
I’m the last operation. Only after I have walked the trail is the product “sold,” so to speak. And that would have to be our throughput—not the rate at which Ron walks the trail, but the rate at which I do.
Inventory is the total length of the line from the first person to the last person
What about the amount of trail between Ron and me? It has to be inventory. Ron is consuming raw materials, so the trail the rest of us are walking is inventory until it passes behind me.
Another game
“The idea is to move as many matches as you can from your bowl to the bowl on your right. When it’s your turn, you roll the die, and the number that comes up is the number of matches you can move. Got it?” They all nod. “But you can only move as many matches as you’ve got in your bowl. So if you roll a five and you only have two matches in your bowl, then you can only move two matches. And if it comes to your turn and you don’t have any matches, then naturally you can’t move any.” They nod again. “How many matches do you think we can move through the line each time we go through the cycle?” I ask them.
The line gets longer when the fastest is first, and slowest is the last
In fact, all the boys have arranged themselves (deliberately or accidentally, I’m not sure which) in an order that allows every one of them to walk without restriction. As I look up the line, I can’t see anybody who is being held back by anybody else. The order in which they’ve put themselves has placed the fastest kid at the front of the line, and the slowest at the back of the line.
What happens when we put the slowest in front instead?
Everybody stays together behind Herbie. I’ve gone to the back of the line so I can keep tabs, and I keep waiting for the gaps to appear, but they don’t. In the middle of the line I see someone pause to adjust his pack straps. But as soon as he starts again, we all walk just a little faster and we’re caught up. Nobody’s out of breath. What a difference!… We’re flying now, doing twice the speed as a troop that we did before. And we still stay together. Inventory is down. Throughput is up.
you should not balance capacity with demand. What you need to do instead is balance the flow of product through the plant with demand from the market… So let me repeat it for you: Balance flow, not capacity.”
Work center
we’re now in the process of calculating the hours each “work center” has to contribute. We’re defining a work center as any group of the same resources. Ten welders with the same skills constitute a work center. Four identical machines constitute another. The four machinists who set up and run the machines are still another, and so on.
Capacity
found the demand for injection molding machines is about 260 hours a month for all the injection molded parts that they have to process. The available time for those machines is about 280 hours per month, per resource. So that means we still have reserve capacity on those machines.
Put the resource with least capacity in first
I thought the best thing to do would be to reorganize everything so the resource with the least capacity would be first in the routings. All other resources would have gradual increases in capacity to make up for the statistical fluctuations passed on through dependency.
Work centers don’t exist in isolation
“The numbers are wrong, not because you have made a calculating error, but because the costs were determined as if these work centers existed in isolation,”
Optimize bottlenecks
how do we optimize the use of the bottlenecks? There are two principal themes. First, make sure the bottlenecks’ time is not wasted… Then make the bottlenecks work only on what will contribute to throughput today . . . not nine months from now
Prioritise according to deadline
“Ralph, I want you to make us a list of all the overdue orders. Have them ranked in priority ranging from the most days overdue to the least days overdue.
Bottlenecks work with highest priority tasks
let’s make sure that people at both of the bottlenecks know to keep working on the order with the highest priority number on the list.”
Work on hiest priority with lowest number
“The tag will be one of two colors: red or green. “A red marker means the work attached to it has first priority. The red tags go on any materials needing to be processed by a bottleneck. When a batch of parts with that color marker arrives at your work station, you are to work on them right away.” … But what happens when you’ve got two batches of the same color? Each tag will have a number marked on it. You should always work on the materials with the lowest number.
Put more resources at the bottlenecks
“Knowing what we know now,” says Lou, “it’s perfectly legitimate for us to assign people to the bottlenecks if it will increase our throughput. We can certainly justify the cost if it increases sales—and thereby increases cash flow… “Sure,” I say. “Take people from the non-bottlenecks. By definition, they have excess capacity anyway.”
Counter-intuitve thinking about when someone is not working
“Once the somebody is already on the payroll, it doesn’t cost us any more to have him be idle. Whether somebody produces parts or waits a few minutes doesn’t increase our operating expense. But excess inventory . . . now that ties up a lot of money.”
Increase frequency, but reduce quantity
“But to reap those benefits fully, we’d have to have our suppliers increase the frequency of deliveries to us and reduce the quantity of each delivery. That’s going to take some negotiating through purchasing, and I’m not sure all the vendors will go for it.”
Setup, process time, queue time, wait time
If you consider the total time from the moment the material comes into the plant to the minute it goes out the door as part of a finished product, you can divide that time into four elements. One of them is setup, the time the part spends waiting for a resource, while the resource is preparing itself to work on the part. Another is process time, which is the amount of time the part spends being modified into a new, more valuable form. A third element is queue time, which is the time the part spends in line for a resource while the resource is busy working on something else ahead of it. The fourth element is wait time, which is the time the part waits, not for a resource, but for another part so they can be assembled together.
Queue and wait time are the longest
setup and process are a small portion of the total elapsed time for any part. But queue and wait often consume large amounts of time — in fact, the majority of the elapsed total that the part spends inside the plant.
The periodic table is not just arranged in a line, but also in columns
“Mendeleev definitely revealed an intrinsic order. He didn’t reveal the reason for that order, that had to wait for another fifty years, when the internal structure of the atoms was found, but he definitely revealed the intrinsic order.
Throughout, then inventory, then operating expenses
Our new scale is different. Throughput is most important, then inventory—due to its impact on throughput and only then, at the tail, comes operating expenses.
Steps:
Trade-off
“It’s a trade-off. The more inventory we allow before the bottleneck, the more time is available for upstream resources to catch up, and so, on average, they need less spare capacity. The more inventory the less spare capacity and vice versa.”
The point is that throughput will be down, operating expense will be up and increasing the buffers means that inventory will be up. Everything is moving in the opposite direction of what it should.”
History in manufacturing
The manufacturing industry has been shaped by two great thinkers, Henry Ford and Taiichi Ohno. Ford revolutionized mass production by introducing the flow lines. Ohno took Ford’s ideas to the next level in his TPS, a system that forced the entire industry to change its grasp of inventory from an asset to a liability.
Flow and inventory
Flow means that inventories in the operation are moving. When inventory is not moving, inventory accumulates. Accumulation of inventory takes up space. Therefore, an intuitive way to achieve better flow is to limit the space allowed for inventory to accumulate.
Flow and local efficiencies
Therefore, in order to achieve flow, Ford had to abolish local efficiencies. In other words, flow lines are flying in the face of conventional wisdom; the convention that, to be effective, every worker and every work center have to be busy 100% of the time.
Ford’s flow lines are based on the following four concepts:
Analogy with a river flowing
There are many rocks at the bottom of the river and it takes time and effort to remove them. The question is which rocks are important to remove. The answer is given by reducing the water level; those rocks which emerge above the water are the ones that should be removed.
We now realize that:
No need to use all resources all the time
striving to constantly activate all resources all the time is not a recipe for effective operations. On the contrary, the exact opposite is true; to reach effective operations, local efficiencies must be abolished.