If you are a TOC follower, this is a company to watch! They announced Martin D. Powell and Oded Cohen as new board members at the end of October. Why is this important?
Answer: "Mr. Oded Cohen has over 30 years of experience working directly with Dr. Eliyahu M. Goldratt." ... and... "Since 1996, Mr. Powell has worked internationally with Dr. Goldratt in implementing the Theory of Constraints (TOC). "
This will be interesting - I will be following Novamerica -- will you?
Tuesday, November 18, 2008
Wednesday, October 15, 2008
Reply to a Jonah revisited
I have to admit I did not actually send my reply to my colleague, Jonah... I usually let this sort of thing fester in my brain before clicking the send button. But it did give me a chance to sort things out in my own head. What I did send my friend, was an invitation to continue our discussion in person. He agrees that TOC is "fantastic" but finds it hard to apply in financial services... I can't wait to find out where he is coming from in more detail...
...more to come...
...more to come...
Tuesday, October 14, 2008
Elegance
I get it - why is the TOC so appealing to me? In a word - elegance.
According to wordnet, elegance is a quality of neatness and ingenious simplicity in the solution of a problem. What is TOC if not elegant? The five focusing steps can be applied in any situation whether it be manufacturing, software development, retail, supply chain or in your day to day life.
According to wordnet, elegance is a quality of neatness and ingenious simplicity in the solution of a problem. What is TOC if not elegant? The five focusing steps can be applied in any situation whether it be manufacturing, software development, retail, supply chain or in your day to day life.
Thursday, October 9, 2008
Reply to a 'Jonah'
The purpose of this blog is to record my day to day growth in understanding and application of the Theory of Constraints (TOC). This first blog is copied from an email conversation that I am engaged in with a colleague. We are both currently employed by a large financial services institution, albeit in different divisions. I have been studying TOC under the tutelage of Dr. Lisa Lang and Brad Stillahn at the Science of Business. I welcome and encourage you comments.
Quote from a Jonah:
I am a certified Jonah. The issue with TOC is that when you subordinate all activities to the constraint, it not only promotes, but necessitates waste. This is a difficult concept for business leaders to embrace. In the financial services world, your machine resource is actually people. FTE is very scalable, so some of the concepts of TOC become less value-add. Also, in our world, we are required by law to produce a certain quantity in a certain timeframe. In the manufacturing world, you typically are trying to anticipate customer demand and produce exactly what is needed. If you under or over produce you end up with a stock out or excess finished goods inventory. Both are bad, but the OTS won't come and shut you down because of it..
My reply:
TOC thinking processes can be applied to any business situation. The first time I read The Goal, I came away with the impression that the manufacturing bottleneck was the constraint - only after a second reading did I come to realize that the management team had to overcome much more than just increasing capacity through the bottleneck (aka Capacity Constrained Resource (CCR)). They repeated the thinking processes throughout the story every time they ran into an obstacle to finally end up with an impressive magnitude of improved throughput.
I assume that you are familiar with Critical Chain PM? Project Management by definition does not fit in the manufacturing world - however by applying cause-effect analysis using the thinking processes led to a PM approach that has achieved far superior results over the traditional PMBOK approach. TOC methods have also been applied to software development with fantastic results (Best to Worst in 9 Months).
Servicing can be viewed as a manufacturing process - there is input, processing and output. The processing is performed by people running machines (computers) that transform the state of the work in process. The process is performed repeatedly to deliver the final products - posted payments, completed payoffs, etc. We should take a more holistic approach, analyzing not only the servicing workflow, but also looking at policies and assumptions that have been ingrained over time - we should be able to identify the constraint that is keeping us from achieving
our goal...
Start with identifying the goal - make more money now and in the future. Then identify the constraint...given our current technology and human resources (and regulations, of course), what one "thing" governs over our ability to increase throughput - is the constraint in the market or internal? - I assume we have account execs trying to sell our service - would they say that they cannot make additional sales because there is nobody buying, or are they restricted by their perception of our capabilities? I would guess the constraint is internal... if so, what is holding the sales team back? Assuming it is lack of capacity, what is the constraint that is governing our ability to increase throughput? Is it a certain type of resource bottleneck? Is it a policy? (perhaps the way work is assigned results in bad multitasking - is there too much work-in-process?) I think if we were to start analyzing the business in that manner, we would be able to quickly identify improvements that would have immediate results on the bottom line.
By the way - TOC does not promote nor does it necessitate waste. For example, the DBR method requires that non-bottlenecks have "excess" capacity to protect the bottleneck - protective capacity by definition is not waste and, managed properly, this capacity can be utilized to
increase throughput. Also, by implementing TOC, there is a huge reduction in overall wip - which is a net reduction in waste. Furthermore, by subordinating your improvement efforts to the
constraint, you should be able to reduce wasteful expenditures trying to improve the non-constraints - again, a net reduction in waste.
Quote from a Jonah:
I am a certified Jonah. The issue with TOC is that when you subordinate all activities to the constraint, it not only promotes, but necessitates waste. This is a difficult concept for business leaders to embrace. In the financial services world, your machine resource is actually people. FTE is very scalable, so some of the concepts of TOC become less value-add. Also, in our world, we are required by law to produce a certain quantity in a certain timeframe. In the manufacturing world, you typically are trying to anticipate customer demand and produce exactly what is needed. If you under or over produce you end up with a stock out or excess finished goods inventory. Both are bad, but the OTS won't come and shut you down because of it..
My reply:
TOC thinking processes can be applied to any business situation. The first time I read The Goal, I came away with the impression that the manufacturing bottleneck was the constraint - only after a second reading did I come to realize that the management team had to overcome much more than just increasing capacity through the bottleneck (aka Capacity Constrained Resource (CCR)). They repeated the thinking processes throughout the story every time they ran into an obstacle to finally end up with an impressive magnitude of improved throughput.
I assume that you are familiar with Critical Chain PM? Project Management by definition does not fit in the manufacturing world - however by applying cause-effect analysis using the thinking processes led to a PM approach that has achieved far superior results over the traditional PMBOK approach. TOC methods have also been applied to software development with fantastic results (Best to Worst in 9 Months).
Servicing can be viewed as a manufacturing process - there is input, processing and output. The processing is performed by people running machines (computers) that transform the state of the work in process. The process is performed repeatedly to deliver the final products - posted payments, completed payoffs, etc. We should take a more holistic approach, analyzing not only the servicing workflow, but also looking at policies and assumptions that have been ingrained over time - we should be able to identify the constraint that is keeping us from achieving
our goal...
Start with identifying the goal - make more money now and in the future. Then identify the constraint...given our current technology and human resources (and regulations, of course), what one "thing" governs over our ability to increase throughput - is the constraint in the market or internal? - I assume we have account execs trying to sell our service - would they say that they cannot make additional sales because there is nobody buying, or are they restricted by their perception of our capabilities? I would guess the constraint is internal... if so, what is holding the sales team back? Assuming it is lack of capacity, what is the constraint that is governing our ability to increase throughput? Is it a certain type of resource bottleneck? Is it a policy? (perhaps the way work is assigned results in bad multitasking - is there too much work-in-process?) I think if we were to start analyzing the business in that manner, we would be able to quickly identify improvements that would have immediate results on the bottom line.
By the way - TOC does not promote nor does it necessitate waste. For example, the DBR method requires that non-bottlenecks have "excess" capacity to protect the bottleneck - protective capacity by definition is not waste and, managed properly, this capacity can be utilized to
increase throughput. Also, by implementing TOC, there is a huge reduction in overall wip - which is a net reduction in waste. Furthermore, by subordinating your improvement efforts to the
constraint, you should be able to reduce wasteful expenditures trying to improve the non-constraints - again, a net reduction in waste.
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