Theory of Constraints Handbook

About the EditorsJAMES F. COX III, PhD, CFPIM, CIRM, holds TOCICO certifications in Production and Supply Chain, Performance Measurement, Critical Chain, Strategy and Tactics, and Thinking Processes. He is a JONAHs JONAH, Professor Emeritus, and was the Robert O. Arnold Professor of Business in the Terry College of Business at the University of Georgia. He has conducted numerous academic and practitioner Theory of Constraints workshops and programs on performance measurement, production, supply chains, management skills, project management, and the thinking processes. Dr. Coxs research has centered on the Theory of Constraints for over 25 years. He has authored or co-authored three books on TOC and almost 100 peer reviewed articles. He was the co-editor of the APICS Dictionary, 7th, 8th, 9th, 10th, and 11th editions, and an invited contributor on the topic of Constraints Management to the Production and Inventory Management Handbook. Dr. Cox has been a member of APICS for over 30 years, holding chapter, regional, and national offices. He served on the APICS Board of Directors for four years with two years as VP of EducationResearch and served on the APICS Educational and Research Foundation Board of Directors for nine years with four years as President. He was a founding member and elected to the founding Board of Directors of the Theory of Constraints International Certification Organization (TOCICO), a certification organization founded by Dr. Eli Goldratt. He later served as Director of Certification responsible for implementing TOCICOs certification program. Now retired, JOHN G. SCHLEIER, Jr. was President and Chief Operating Officer of the Mortgage Services Division of Alltel, Inc., Executive Vice President of Computer Power, Inc., and Director of Office Systems and Data Delivery for IBM. In these positions, he directed major software development projects, sales administration, and financial functions. He was also Director of Information Systems for IBMs General Systems Division, where he provided oversight for Development Engineering, Manufacturing, and Headquarters systems. He developed information systems for manufacturing, sales, and IBM strategic planning functions and was winner of an IBM Outstanding Contribution Award. He was a regular lecturer on Strategic Planning at IBM Executive Briefing Centers over a period of 15 years, speaking to CEOs and top executives of major corporations. He frequently took consulting assignments dealing with complex project management issues around the world. He served on the faculty of The University of Georgia College of Business Administration as IBM Executive in Residence and later as Executive Professor of Management, serving on both the Management Information Systems and Production Operations Management faculties. Mr. Schleier holds TOCICO certification in all disciplines. He co-authored Managing Operations: A Focus on Excellence, a college text emphasizing TOC concepts (North River Press, 2003). He also published Turkey Tales, a childrens book (Tate Publishing, 2010).

Theory of Constraints HandbookEdited by

James F. Cox III John G. Schleier, Jr.

New York Chicago San Francisco Lisbon London Madrid Mexico City Milan New Delhi San Juan Seoul Singapore Sydney Toronto

Copyright 2010 by James F. Cox, III and John G. Schleier, Jr. All rights reserved. Except as permitted under the United States Copyright Act of 1976, no part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written permission of the publisher. ISBN: 978-0-07-166555-1 MHID: 0-07-166555-2 The material in this eBook also appears in the print version of this title: ISBN: 978-0-07-166554-4, MHID: 0-07-166554-4. All trademarks are trademarks of their respective owners. Rather than put a trademark symbol after every occurrence of a trademarked name, we use names in an editorial fashion only, and to the benet of the trademark owner, with no intention of infringement of the trademark. Where such designations appear in this book, they have been printed with initial caps. McGraw-Hill eBooks are available at special quantity discounts to use as premiums and sales promotions, or for use in corporate training programs. To contact a representative please e-mail us at bulksales@mcgraw-hill.com. Information contained in this work has been obtained by The McGraw-Hill Companies, Inc. (McGraw-Hill) from sources believed to be reliable. However, neither McGraw-Hill nor its authors guarantee the accuracy or completeness of any information published herein, and neither McGraw-Hill nor its authors shall be responsible for any errors, omissions, or damages arising out of use of this information. This work is published with the understanding that McGraw-Hill and its authors are supplying information but are not attempting to render engineering or other professional services. If such services are required, the assistance of an appropriate professional should be sought. TERMS OF USE This is a copyrighted work and The McGraw-Hill Companies, Inc. (McGrawHill) and its licensors reserve all rights in and to the work. Use of this work is subject to these terms. Except as permitted under the Copyright Act of 1976 and the right to store and retrieve one copy of the work, you may not decompile, disassemble, reverse engineer, reproduce, modify, create derivative works based upon, transmit, distribute, disseminate, sell, publish or sublicense the work or any part of it without McGraw-Hills prior consent. You may use the work for your own noncommercial and personal use; any other use of the work is strictly prohibited. Your right to use the work may be terminated if you fail to comply with these terms. THE WORK IS PROVIDED AS IS. McGRAW-HILL AND ITS LICENSORS MAKE NO GUARANTEES OR WARRANTIES AS TO THE ACCURACY, ADEQUACY OR COMPLETENESS OF OR RESULTS TO BE OBTAINED FROM USING THE WORK, INCLUDING ANY INFORMATION THAT CAN BE ACCESSED THROUGH THE WORK VIA HYPERLINK OR OTHERWISE, AND EXPRESSLY DISCLAIM ANY WARRANTY, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. McGraw-Hill and its licensors do not warrant or guarantee that the functions contained in the work will meet your requirements or that its operation will be uninterrupted or error free. Neither McGraw-Hill nor its licensors shall be liable to you or anyone else for any inaccuracy, error or omission, regardless of cause, in the work or for any damages resulting therefrom. McGraw-Hill has no responsibility for the content of any information accessed through the work. Under no circumstances shall McGraw-Hill and/or its licensors be liable for any indirect, incidental, special, punitive, consequential or similar damages that result from the use of or inability to use the work, even if any of them has been advised of the possibility of such damages. This limitation of liability shall apply to any claim or cause whatsoever whether such claim or cause arises in contract, tort or otherwise.

ContentsPreface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Acknowledgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xxxiii xxxv

Section I1

What Is TOC?Introduction to TOCMy Perspective Eliyahu M. Goldratt . . . Focus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Constraints and Non-Constraints . . . . . . . . . . . . . . . . . . . . . . . . . Measurements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Goal and The Race . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other Environments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Thinking Processes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Market Constraint . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capitalize and Sustain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ever Flourishing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Strategy and Tactic Trees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . New Frontiers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . About the Author . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 3 4 4 5 5 5 6 6 7 8 8 9 9

Section II Critical Chain Project Management2 The Problems with Project Management Ed Walker . . . . . . . . . Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purpose and Organization of the Chapter . . . . . . . . . . . . . . . . . . Traditional Planning and Control Mechanisms in Project Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gantt Charts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PERT/CPM in the Single Project Environment . . . . . . . . Brief Review of Project Management Literature . . . . . . . . . . . . . Origins of PERT and CPM . . . . . . . . . . . . . . . . . . . . . . . . . Project Failures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Single Project Management Literature . . . . . . . . . . . . . . . Multiple Project Management Literature . . . . . . . . . . . . . Development of Guidelines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Macro Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Micro Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A Brief Overview of Critical Chain Project Management . . . . . . Critical Chain in the Single Project Environment . . . . . . 13 13 13 14 14 15 16 16 17 18 19 19 21 25 36 36

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ContentsBrief Review of Critical Chain Literature . . . . . . . . . . . . . . . . . . . Summary and Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . About the Author . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A Critical Chain Project Management Primer Charlene Spoede Budd and Janice Cerveny . . . . . . . . . . . . . . . . . . . . . . . . Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Why These Widespread Project-Related Problems Persist . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Task Duration Uncertainty . . . . . . . . . . . . . . . . . . . . . . . . . Traditional Survivor Behaviors . . . . . . . . . . . . . . . . . . . . . Key Elements of Critical Chain . . . . . . . . . . . . . . . . . . . . . . . . . . . Issues in Creating a Project Plan . . . . . . . . . . . . . . . . . . . . Issues in Managing Project Execution . . . . . . . . . . . . . . . . Scheduling a Single Project . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Modifying Task Duration Estimates . . . . . . . . . . . . . . . . . A Bit of Statistics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Critical Chain Scheduling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Critical Chain SchedulingSteps 1 through 4 . . . . . . . . . Merging PathsStep 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . CommunicationsStep 6 . . . . . . . . . . . . . . . . . . . . . . . . . . Three Sources of Critical Chain Project Protection . . . . . Scheduling Projects in Multi-Project Environments . . . . . . . . . . Establishing Project Priorities . . . . . . . . . . . . . . . . . . . . . . . Selecting a Scheduling Resource and Establishing Scheduling Buffers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Project Control: The Power of Buffer Management . . . . . . . . . . Tracking Buffer Consumption . . . . . . . . . . . . . . . . . . . . . . Knowing When to Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Adjusting Buffers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Using Buffer Consumption Information to Continuously Improve . . . . . . . . . . . . . . . . . . . . . . . . . . Project Budgeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Components of a Project Budget . . . . . . . . . . . . . . . . . . . . Assigning Total Project Costs to Project Tasks . . . . . . . . . Implementing a New Project Budgeting Process . . . . . . . Project Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Internal Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . External Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Causing the Change: Behavioral Issues, Management Tactics, and Implementation . . . . . . . . . . . . . . . . . . . . . . . . . . . Managerial Actions to Support Critical Chain Project Management . . . . . . . . . . . . . . . . . . . . . . Importance of Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Implementing a Critical Chain Project Management System . . . . . . . . . . . . . . . . . . . . . . . . . . . . Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 39 41 44 45 45 45 46 47 48 48 50 50 50 52 53 53 55 56 58 58 59 59 62 62 63 64 66 66 66 68 69 69 69 70 71 72 73 73 75

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ContentsReferences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . About the Authors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Getting Durable Results with Critical ChainA Field Report Realization Technologies, Inc. . . . . . . . . . . Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purpose and Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Recap of Critical Chain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rule 1 Pipelining: Limit the Number of Projects in Execution at One Time . . . . . . . . . . . . . . . . . . . . . . . . . . Rule 2 Buffering: Discard Local Schedules and Measurements, and Use Aggregate Buffers . . . . . . . . . Rule 3 Buffer Management: Use Buffers to Measure Execution, and Drive Execution Priorities and Managerial Interventions . . . . . . . . . . . . . . . . . . . . Practical Challenges in Implementing Critical Chain . . . . . . . . . Challenge 1: Gaining Managerial Commitment for Implementing the Three Rules . . . . . . . . . . . . . . . . . . . Challenge 2: Translating Concepts into Practical Procedures and Instructions . . . . . . . . . . . . . . . . . . . . . . Challenge 3: Sustaining the Critical Chain Rules and Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Step-By-Step Process for Implementing Critical Chain . . . . . . . Step 1: Achieve Management Buy-In . . . . . . . . . . . . . . . . Step 2: Reduce WIP and Implement Full Kitting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Step 3: Build Buffered Project Plans . . . . . . . . . . . . . . . . . . Step 4: Establish Task Management . . . . . . . . . . . . . . . . . . Step 5: Implement Surrounding Processes . . . . . . . . . . . . Step 6: Identify Opportunities for Continuous Improvement (POOGI) . . . . . . . . . . . . . . . . . . . . . . . . . . Step 7: (When Applicable) Use Superior Delivery as a Competitive Advantage to Win More Business . . . . . Lessons Learned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Performance Gains Come from Managing Differently, Not Better Planning and Visibility . . . . . . . . . . . . . . . . Implement All of the Three Rules . . . . . . . . . . . . . . . . . . . Top Managers Must Play an Active Role . . . . . . . . . . . . . Actively Manage the Buffers . . . . . . . . . . . . . . . . . . . . . . . . Frequently Asked Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Can Critical Chain be implemented without basic project management in place rst? . . . . . . . . . . . . . . . . Should a pilot be run before a full rollout of Critical Chain? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . What about cultural and behavioral changes? . . . . . . . . . What is the role of software in Critical Chain? . . . . . . . . Is a Project Management Ofce (PMO) needed with Critical Chain? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

vii76 77 79 79 79 81 82 82

83 83 84 84 84 85 86 87 88 90 91 92 93 93 93 93 94 94 95 95 95 96 96 96

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ContentsHow is non-project work handled with Critical Chain? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Should the scope of a Critical Chain implementation include vendors and subcontractors? . . . . . . . . . . . . . . How does Critical Chain improve quality? . . . . . . . . . . . Critical Chain seems to be all about timelines; what about controlling costs? . . . . . . . . . . . . . . . . . . . . Do we need project-level budgets in multi-project operations? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Does Critical Chain work with Earned Value Reporting? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . How does Critical Chain work with Lean? . . . . . . . . . . . What are the likely causes of failure in implementing Critical Chain? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . About the Author . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Making Change Stick Rob Newbold . . . . . . . . . . . . . . . . . . . . . . . Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Uptake Problem . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . No Urgency to Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Silver Bullet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Negative Branches . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Root Causes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Cycle of Results (CORE) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Basic Principles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Simple Example: Cleaning the Room . . . . . . . . . . . . . . . . Simple Example: TOC Practitioners Group . . . . . . . . . . . Other Processes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Implementation Planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Planning with the Cycle of Results . . . . . . . . . . . . . . . . . . Traps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . About the Author . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Project Management in a Lean WorldTranslating Lean Six Sigma (LSS) into the Project Environment AGI-Goldratt Institute . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Introduction: Its a Lean World . . . . . . . . . . . . . . . . . . . . . . . . . . . . What Is the Project Environments Point of View to Being Leaned? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Project Environment System of Systems ............. What Do We Improve? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Translating Lean into the Project System of Systems for Improvement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

96 97 97 97 98 98 98 99 99 100 100 101 101 102 103 105 106 108 108 109 112 112 113 116 116 118 119 120 121

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123 123 124 125 127 127

ContentsAddressing the Disconnects in Lean Techniques for Project Environments . . . . . . . . . . . . . . . . . . . . . . . . The Five Principles of Lean Applied to the Project Environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Specifying Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Identify Steps in the Value Stream . . . . . . . . . . . . . . . . . . . Make Value-Creating Steps Flow towards the Customer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Let Customers Pull Value from the Next Upstream Activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Pursuing Perfection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Leaning Traditional Project Management . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . About the Author . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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130 131 131 131 131 132 136 139 140 141

Section III Drum-Buffer-Rope, Buffer Management and Distribution7 A Review of Literature on Drum-Buffer-Rope, Buffer Management and Distribution John H. Blackstone Jr. . . . . . . . . . . . Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Literature on Precursors of TOC and DBR . . . . . . . . . . . . . . . . . . Historical Developments Preceding TOC . . . . . . . . . . . . . Derivation of DBR Using the Five Focusing Steps . . . . . Literature on DBR Scheduling . . . . . . . . . . . . . . . . . . . . . . . . . . . . Overviews . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Applying DBR to Different Types of Facilities: VATI Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Special Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Free Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . What if the Market Is the Constraint? . . . . . . . . . . . . . . . . Re-Entrant Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Recoverable Manufacturing and Remanufacturing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Buffer Management Literature ........................... Buffer Sizing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Buffer Sizing and Lead Time . . . . . . . . . . . . . . . . . . . . . . . . TOC and Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Supply Chain Management . . . . . . . . . . . . . . . . . . . . . . . . Service Environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TOC and Other Modern Philosophies . . . . . . . . . . . . . . . . Problems with DBR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Floating or Multiple Bottlenecks . . . . . . . . . . . . . . . . . . . . Summary and Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . About the Author . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145 145 146 146 149 151 151 153 159 159 159 160 160 160 161 162 162 163 163 164 164 165 165 166 173

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Contents8 DBR, Buffer Management, and VATI Flow Classication Mokshagundam (Shri) Srikanth . . . . . . . . . . . . . . . . . . Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Managing FlowPlanning and DBR . . . . . . . . . . . . . . . . . . . . . . The Need for a Focus on Flow . . . . . . . . . . . . . . . . . . . . . . Ford and Toyota Production Systems A New Perspective . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Production Operations and the Five Focusing Steps of TOC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Characteristics of Production Operations ............ Applying the Five Focusing Steps to Production Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The DBR System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Drum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Buffer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Rope . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Managing Flow with DBRAn Example .................. Managing FlowControlling Execution and Buffer Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Need for Control and the Need for Corrective Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Understanding Buffers: The Buffer as the Source of Information for Controlling Execution . . . . . . . . . . . . . Buffer ManagementThe Process . . . . . . . . . . . . . . . . . . . Complex Production Environments and a Classication Scheme . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Fundamental Elements of the Classication Scheme . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . V, A, T, and I FlowsDescriptions and Examples . . . . . . . . . . . V-Plants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . DBR in V-Plants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-Plants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . DBR in A-Plants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . T-Plants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . DBR in T-Plants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-Plants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . DBR in I-Plants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . About the Author . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . From DBR to Simplied-DBR for Make-to-Order Eli Schragenheim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A Historical Background and Perspective . . . . . . . . . . . . . . . . . .

175 175 176 176 178 180 181 183 185 185 186 189 190 195 195 196 198 199 199 201 201 203 204 205 206 208 208 209 209 209 210 211 211 212

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ContentsThree Views on Operations Planning and Execution . . . . . . . . . The Five-Focusing Steps (5FS) . . . . . . . . . . . . . . . . . . . . . . The Critical Distinction between Planning and Execution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Concentrating on the Flow . . . . . . . . . . . . . . . . . . . . . . . . . Challenging the Traditional DBR Methodology . . . . . . . . . . . . . What Should the Strategic Constraint Be? . . . . . . . . . . . . How Is the Planning and Execution Viewpoint Addressing the Issue of Scheduling and Buffering the CCR? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . How Does Refraining From a Detailed Schedule of the CCR Affect the Execution? ...................... What Does the Emphasis on Flow Add to the Challenge to Traditional DBR? . . . . . . . . . . . . . . . . . . . Outlining the Direction of the Solution . . . . . . . . . . . . . . . . . . . . . The Main Ingredients of the Solution . . . . . . . . . . . . . . . . The Time Buffer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Load Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Determining the Safe Dates . . . . . . . . . . . . . . . . . . . . . . . . Capacity Reservation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Buffer Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Short-Term Planned Load . . . . . . . . . . . . . . . . . . . . . . . . . . The Notion of Slack . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Where S-DBR Fits Nicely . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Cases Where S-DBR Does Not Fit . . . . . . . . . . . . . . . Implementation Issues and Processes . . . . . . . . . . . . . . . . . . . . . . Looking Ahead to MTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Suggested Reading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . About the Author . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Managing Make-to-Stock and the Concept of Make-to-Availability Eli Schragenheim . . . . . . . . . . . . . . . . . . . . . Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Why Is a Special Methodology for MTS Required? . . . . . . . . . . The Current Confusion in Managing Stock . . . . . . . . . . . The Common Misunderstanding of Forecasts . . . . . . . . . The Current Undesirable Effects in MTS . . . . . . . . . . . . . What to Do? The Direction of the Solution . . . . . . . . . . . . . . . . . . The Basic Principle of Flow . . . . . . . . . . . . . . . . . . . . . . . . . From MTS to MTA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Determining the Appropriate Inventory . . . . . . . . . . . . . . Buffer Management in MTA . . . . . . . . . . . . . . . . . . . . . . . . Generating Production Orders and the State of Capacity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Peak and Off-Peak Behaviors . . . . . . . . . . . . . . . . . . . . . . . 213 213 214 216 217 217

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218 219 219 219 220 221 222 224 228 229 231 232 232 234 236 237 237 237 238 239 239 240 241 241 243 244 244 244 245 246 248 250

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ContentsMonitoring the Target Level SizeDynamic Buffer Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Too Much Greenthe Target Is Too High . . . . . . . . . . . . Too Much Redthe Target Is Too Low . . . . . . . . . . . . . . . Discussion: Issues with DBM and By How Much to Increase/Decrease the Targets . . . . . . . . . . . . . . . . . . The Role of Protective Capacity and the Usefulness of Maintaining a Capacity Buffer . . . . . . . . . . . . . . . . . . . . . . . . . . The Process of Ongoing Improvement (POOGI) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Generic Issues in MTA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . MTA for Components . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Which Items Fit MTA and Which Fit MTO? . . . . . . . . . . . Vendor-Managed Inventory (VMI) . . . . . . . . . . . . . . . . . . Mixed (MTA and MTO) Environments . . . . . . . . . . . . . . . Dealing with Seasonality . . . . . . . . . . . . . . . . . . . . . . . . . . . Problematic Environments for MTA . . . . . . . . . . . . . . . . . MTS That Is Not MTA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Implementation Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Moving from MTS or MTO to MTA . . . . . . . . . . . . . . . . . . Software Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Suggested Reading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . About the Author . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Supply Chain Management Amir Schragenheim . . . . . . . . . . . . . Introduction: The Current Practice of Managing Supply Chains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Problems with the Current System . . . . . . . . . . . . . . . . . . . . . . . . The Natural Tendency for Push Behavior . . . . . . . . . . . . . Why Is It Impossible to Find a Good Forecasting Model? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The TOC WayThe Distribution/Replenishment Solution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Aggregate Stock at the Highest Level in the Supply Chain: The Plant/Central Warehouse (PWH/CWH) . . . . . . . Determine Stock Buffer Sizes for All Chain Locations Based on Demand, Supply, and Replenishment Lead Time . . . . . . . . . . . . . . . . . . . . . . . Increase the Frequency of Replenishment . . . . . . . . . . . . Manage the Flow of Inventories Using Buffers and Buffer Penetration . . . . . . . . . . . . . . . . . . . . . . . . . . Use Dynamic Buffer Management . . . . . . . . . . . . . . . . . . . Set Manufacturing Priorities According to Urgency in the PWH Stock Buffers . . . . . . . . . . . . . . . . . . . . . . . . Why Does a Pull Supply Chain Work Better? . . . . . . . . .

251 251 251 252 253 255 256 256 256 258 258 259 260 261 262 262 262 264 264 264 265 265 266 266 266 269

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ContentsSome of the Finer Points in Managing the TOC Distribution/ Replenishment Solution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Managing Product Portfolios . . . . . . . . . . . . . . . . . . . . . . . Rules for Setting up Initial Buffer Sizes . . . . . . . . . . . . . . . Managing Seasonality in the TOC Distribution/ Replenishment Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Known Patterns for Sudden Changes in Consumption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Two Different Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . Resolving the Forecasting versus DBM Dilemma to Provide Excellent Consumption before, during, and after an SDC . . . . . . . . . . . . . . . . . . . . . . . . Identifying When an SDC Is Meaningful . . . . . . . . . . . . . Handling of an SDC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Implementing the TOC Distribution/Replenishment Model How Can Software Help and Is It Really Needed? . . . . . . . . Testing the Solution on a Smaller Scale . . . . . . . . . . . . . . . . . . . . . Simulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Pilot Project . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Managing the TOC Buy-in Process . . . . . . . . . . . . . . . . . . . . . . . . Actual Results of the TOC Distribution/Replenishment Solution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Recommended Reading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . About the Author . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Integrated Supply Chain Chad Smith and Carol Ptak . . . . . . . . . . Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Identifying the Real ProblemRethinking the Scope of Supply Chain Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . A Brief History of MRP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Can MRP Meet Todays Challenge? . . . . . . . . . . . . . . . . . . . . . . . . The MRP Conict Today . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The MRP Compromises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Actively Synchronized Replenishmentthe Way Out of MRP Compromises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Strategic Inventory Positioning . . . . . . . . . . . . . . . . . . . 2. Dynamic Buffer Level Proling and Maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Dynamic Buffers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4. Pull-Based Demand Generation . . . . . . . . . . . . . . . . . . . 5. Highly Visible and Collaborative Execution . . . . . . . . Case Studies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Case Study 1: Oregon Freeze Dry . . . . . . . . . . . . . . . . . . . Case Study 2: LeTourneau Technologies, Inc. . . . . . . . . .

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288 289 290 292 294 294 296 297 299 299 300 300 301 303 303 305 306 308 310 310 312 313 315 317 318 322 329 329 329

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ContentsSummary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . About the Authors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 331 331 332

Section IV Performance Measures13 Traditional Measures in Finance and Accounting, Problems, Literature Review, and TOC Measures Charlene Spoede Budd . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Traditional Cost Accounting and Business Environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Development of Cost Accounting . . . . . . . . . . . . . . . . . . . Business Environment, First Half of the 20th Century . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Business Environment, Second Half of the 20th Century . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accountings Response to a 20th Century Changing Environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Direct or Variable Costing Income Statement . . . . . . . . . Activity-Based Cost Accounting . . . . . . . . . . . . . . . . . . . . Balanced Scorecard . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lean Accounting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Traditional Budgeting, Capital Budgets, and Control Mechanisms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TOC Approach to Planning, Control, and Sensitivity Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Throughput Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sensitivity Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Throughput Accounting Approach to Performance Evaluation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Possible Explanations for the Lack of TOC Literature in Accounting and Finance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Future TOC Accounting/Finance Research Needs . . . . . . . . . . . Case Studies and Simulations . . . . . . . . . . . . . . . . . . . . . . . Information and Decision Making . . . . . . . . . . . . . . . . . . . Summary and Introduction of Remaining Chapters in This Section . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Chapter Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other Chapters Dealing with Performance Measures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . About the Author . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

335 335 336 336 337 337 338 338 339 340 342 343 346 346 349 363 364 364 365 365 365 366 366 366 367 371

Contents14 Resolving Measurement/Performance Dilemmas ................................. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Do We Measure Too Much? . . . . . . . . . . . . . . . . . . . . . . . . Why Do We Have Measurements? . . . . . . . . . . . . . . . . . . Global Metrics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Constraint Is the Primary Relevant Factor . . . . . . . . Prot Maximizing in TOC . . . . . . . . . . . . . . . . . . . . . . . . . . Local Metrics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Metric 1: Reliability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Metric 2: Stability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Metric 3: Speed/Velocity .......................... Metric 4: Strategic Contribution . . . . . . . . . . . . . . . . . . . . . Metric 5: Local Operating Expense . . . . . . . . . . . . . . . . . . Metric 6: Local Improvement/Waste . . . . . . . . . . . . . . . . . Feedback and Accountability Systems . . . . . . . . . . . . . . . . . . . . . So, How Is the Operational System Performing? . . . . . . Focusing on Improvement . . . . . . . . . . . . . . . . . . . . . . . . . A Case Study . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . About the Authors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Debra Smith and Jeff Herman

373 373 374 375 376 378 380 383 383 387 388 389 389 390 391 392 392 396 397 399 401 403 403 403 404 404 405 406 406 406 408 408 410 411 412 412 412

15

Continuous Improvement and Auditing Dr. Alan Barnard . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The GoalAchieving Continuous or Ongoing Improvement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purpose and Organization of This Chapter . . . . . . . . . . . Key Concepts and Denitions . . . . . . . . . . . . . . . . . . . . . . A Historical PerspectiveStanding on the Shoulders of Giants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Why Change? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Improvement Gap and Challenges . . . . . . . . . . . . . . The Types of Management Mistakes When under Pressure to Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Extent and Consequences of the Failure Rate of Change ................................ The Vicious Cycle Related to the High Failure Rate of Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Summary of Why Change? . . . . . . . . . . . . . . . . . . . . . . . . . What to Change? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Introduction ..................................... Finding the Core Conicts within Continuous Improvement and Auditing .....................

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ContentsFinding a Simple and Systematic Way to Break Conicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Identifying Limiting versus Enabling Paradigms in Continuous Improvement . . . . . . . . . . . . . . . . . . . . . . . Summary of What to Change . . . . . . . . . . . . . . . . . . . . . . . . To What to Change? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Criteria to Evaluate a New Solution . . . . . . . . . . . . . . . . . Direction of Solution to Breaking the Continuous Improvement Conicts . . . . . . . . . . . . . . . . . . . . . . . . . . Lessons from CI Methods Developed by Ford and Ohno and Other Giants . . . . . . . . . . . . . . . . . . . . . . Importance (and Risks) of Measurements and Incentives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ensuring the New Direction Addresses All Major UDEs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Potential Negative Branches and How to Prevent Them . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Summary of What to Change to? . . . . . . . . . . . . . . . . . . How to Cause the Change? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Typical Implementation Obstacles and How to Overcome These . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Using TOC to Focus and Accelerate Lean and Six Sigma Initiatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . Using TOCs S&T as a CI and Auditing Tool . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Summary of How to Cause the Change . . . . . . . . . . . . . . Summary of Continuous Improvement and Auditing the TOC Way . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . About the Author . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Appendix AContinuous Improvement Opportunity Templates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Holistic TOC Implementation Case Studies Dr. Alan Barnard and Raimond E. Immelman . . . . . . . . . . . . . . . . . . . . . . Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Historical Perspective to Holistic TOC Implementations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Goldratt Satellite Program . . . . . . . . . . . . . . . . . . . . . . The X-Y Syndrome of Local TOC Implementations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The 4 4First Attempt at a Process to Launch a Holistic TOC Implementation . . . . . . . . . . . . . . . . . . . . The Viable Vision Initiative . . . . . . . . . . . . . . . . . . . . . . . . . Using TOCs Strategy and Tactic Tree to Guide Holistic Implementations . . . . . . . . . . . . . . . . . . . . . . . .

414 415 416 418 418 418 419 428 429 431 438 439 440 440 441 443 447 447 453 454 454 455 455 455 456 457 458 460 460

ContentsCatering for Differences within the Private and Public Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Holistic Implementation of TOC in the Public Sector . . . . . . . . . Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Designing the Five-Day TOC Workshop and Implementation Process . . . . . . . . . . . . . . . . . . . . . Proposed Changes to the Traditional TOC TP Analysis Roadmap . . . . . . . . . . . . . . . . . . . . . . . . . . . Detailed Case Study: Analysis on Solid Waste Management in City A . . . . . . . . . . . . . . . . . . . . . . . . . . Current Status of Pilot Projects (by the End of 2009) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Future Application of TOC within the Public Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Specic Lessons Learned from All the Public Sector Pilots . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Future Research . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Holistic TOC Implementation in the Private Sector . . . . . . . . . . The Birth of First Solar Inc. . . . . . . . . . . . . . . . . . . . . . . . . . Theory of Constraints Contribution to First Solars Success . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Building the Foundation . . . . . . . . . . . . . . . . . . . . . . . . . . . Unbolting the Existing Systems and Measures . . . . . . . . Building on Early Success . . . . . . . . . . . . . . . . . . . . . . . . . . Implementing the Proven TOC Toolset . . . . . . . . . . . . . . . The Role of TOCs Thinking Processes at First Solar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . What Has Made TOC Work at First Solar? . . . . . . . . . . . . Recommendations and Summary . . . . . . . . . . . . . . . . . . . . . . . . . Recommended Good Practices for Implementing TOC Holistically . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . About the Authors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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461 461 462 463 464 466 478 480 481 483 483 485 488 488 490 490 491 492 492 493 493 496 497 498

Section V17

Strategy, Marketing, and SalesTraditional Strategy Models and Theory of ConstraintsMarjorie J. Cooper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . What Is a Business Strategy? . . . . . . . . . . . . . . . . . . . . . . . Factors That Comprise Strategy . . . . . . . . . . . . . . . . . . . . . Criteria for a Good Strategy . . . . . . . . . . . . . . . . . . . . . . . . Theories of Business Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ansoffs Matrix of Four Strategies . . . . . . . . . . . . . . . . . . . Porters List . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

501 501 501 502 503 503 504 504

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ContentsThe Resource-Based View . . . . . . . . . . . . . . . . . . . . . . . . . . Learning/Emergent Strategies . . . . . . . . . . . . . . . . . . . . . . A Summary of Schools of Strategy . . . . . . . . . . . . . . . . . . . Marketing and Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . What Is Marketing Strategy? . . . . . . . . . . . . . . . . . . . . . . . Sales and Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Challenges for Strategy and Execution . . . . . . . . . . . . . . . . . . . . . Inadequate Planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Inability to Analyze the System . . . . . . . . . . . . . . . . . . . . . No Theory of Implementation . . . . . . . . . . . . . . . . . . . . . . Conicts within the System . . . . . . . . . . . . . . . . . . . . . . . . Conicting Standards of Performance . . . . . . . . . . . . . . . Dysfunctional Compensation and Reward Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TOC Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Future Research Opportunities . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . About the Author . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Theory of Constraints Strategy Gerald Kendall . . . . . . . . . . . . . IntroductionWhat Differentiates a TOC Strategy? . . . . . . . . . Chapter Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Denitions and Foundations of TOC Strategy . . . . . . . . . . . . . . . Three Goals or Necessary Conditions of Any Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Five Focusing Steps . . . . . . . . . . . . . . . . . . . . . . . . . . . ExampleThe Five Focusing Steps . . . . . . . . . . . . . . . . . . The Role of Throughput Accounting and Other Metrics in Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Overview of TOC Strategy Applications in Manufacturing, Projects, and Consumer Goods Distribution/Retail Organizations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Introduction to Strategy Applications . . . . . . . . . . . . . . . . Generic Content of S&T Structures . . . . . . . . . . . . . . . . . . Manufacturing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Projects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Distribution/Retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Six Ways That the Holistic Distribution System Increases Throughput . . . . . . . . . . . . . . . . . . . . Four Generic Prerequisites/Injections for a Lasting Competitive Edge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . INJ. 1: Increase Customer Perception of Value that Competitors Have Difculty Copying . . . . . . . . . . . . . INJ. 2: Implement Practical Segmentation . . . . . . . . . . . . INJ. 3: Identify and Build the Decisive Competitive Edge Factor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . INJ. 4: Strategic Segmentation . . . . . . . . . . . . . . . . . . . . . . 505 506 506 508 509 510 510 510 511 511 512 513 513 514 514 515 518 519 519 519 520 520 522 522 524

525 525 525 529 531 535 540 541 542 542 543 543

ContentsDesirable Effects of a Good Strategy . . . . . . . . . . . . . . . . . . . . . . . Two Forms of Strategy and TacticsTP and S&T Trees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Integrating Other Methodologies Such as Lean and Six Sigma . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dealing with Human Behavior in a Strategy . . . . . . . . . . . . . . . . Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . About the Author . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Strategy H. William Dettmer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Popular Conception of Strategy . . . . . . . . . . . . . . . . . . . . . . . The System Concept . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A Vertical Hierarchy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A Common Denominator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A Whole-System View . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The OODA Loop . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Strategy as a Journey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Orientation and Observation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Decision and Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Pro-Acting Rather than Reacting . . . . . . . . . . . . . . . . . . . . . . . . Fast OODA Loop Cycles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Summarizing Boyd . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Logical Thinking Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Intermediate Objectives Map . . . . . . . . . . . . . . . . . . . . . . . . . Constraint Management Model: A Synthesis of TOC and the OODA Loop . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Role of the LTP in the CMM . . . . . . . . . . . . . . . . . . . . . . . . . . What about Steps 6 and 7? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Summary and Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . About the Author . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Layers of ResistanceThe Buy-In Process According to TOC Efrat Goldratt-Ashlag . . . . . . . . . . . . . . . . . . . . Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Layers of Resistance to Change . . . . . . . . . . . . . . . . . . . . . . . Disagreement on the Problem . . . . . . . . . . . . . . . . . . . . . . . . . . . . Layer 0. There is no problem . . . . . . . . . . . . . . . . . . . . . . . Layer 1. Disagreeing on the problem . . . . . . . . . . . . . . . . . Layer 2. The problem is out of my control . . . . . . . . . . . . Disagreement on the Solution . . . . . . . . . . . . . . . . . . . . . . . . . . . . Layer 3. Disagreeing on the direction for the solution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Layer 4. Disagreeing on the details of the solution .... Layer 5. Yes, but... The solution has negative ramications .................................. 544 545 546 547 548 548 549 551 551 552 552 554 554 554 555 556 557 557 558 558 559 560 563 566 568 568 569 570 571 571 572 574 574 576 577 578 578 579 580

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20

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ContentsDisagreement on the Implementation . . . . . . . . . . . . . . . . . . . . . . Layer 6: Yes, but we cant implement the solution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Layer 7: Disagreement on the details of the implementation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Layer 8: You know the solution holds risk . . . . . . . . . . . . Layer 9: I dont think soSocial and psychological barriers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sense of Ownership: The Key to True Buy-In . . . . . . . . . . . . . . . Bottom Line . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . About the Author . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21Mauricio Herman and Rami Goldratt

581 581 581 582 582 583 584 584 585 587 587 588 589 595 597 598 599 600 601 603 603 604 606 607 610 611 612 612 613 614 615 616 616 616 617 618 618 618 619

Less Is MoreApplying the Flow Concepts to Sales ............................ Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Improving Flow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preventing Overproduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Local Efciencies Must Be Abolished . . . . . . . . . . . . . . . . . . . . . . A Focusing Process Must Be in Place . . . . . . . . . . . . . . . . . . . . . . . Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Addendum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . About the Authors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Maa Offers: Dealing With a Market Constraint ............................................. Introduction: What Is a Maa Offer? . . . . . . . . . . . . . . . . . . . . . . . Do You Have a Market Constraint? . . . . . . . . . . . . . . . . . . . . . . . . Developing a Maa Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Custom Label PrinterAn Example . . . . . . . . . . . . . . . . . . . . . . . The TestIs It a Maa Offer? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . What Did It Take to Make the Offer? . . . . . . . . . . . . . . . . . . . . . . . A Maa Offer Is NOT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Where to Start? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sustaining the Advantage and the Offer . . . . . . . . . . . . . . . . . . . . Its a Business Deal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Psychology of Delivering a Maa Offer . . . . . . . . . . . . . . . . Agree on the Problem . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Agree on the Direction of the Solution . . . . . . . . . . . . . . . Agree the Solution Solves the Problem . . . . . . . . . . . . . . . Agree on the Problem . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Agree on the Direction of the Solution . . . . . . . . . . . . . . . Agree Our Solution Solves Their Problem . . . . . . . . . . . . Close . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . For Whom Can You Develop Offers? . . . . . . . . . . . . . . . .

22

Dr. Lisa Lang

ContentsCan You Create a Maa Offer? . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Templates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Vendor Managed Inventory . . . . . . . . . . . . . . . . . . . . . . . . Reliable Rapid Response . . . . . . . . . . . . . . . . . . . . . . . . . . . Consumer Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Projects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Pay Per Click . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gain Sharing (My Maa Offer) . . . . . . . . . . . . . . . . . . . . . . Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . About the Author . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 620 621 621 622 623 624 625 626 627 627 628

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Section VI Thinking Processes23 The TOC Thinking ProcessesVictoria J. Mabin and John Davies

.............................. Introduction ........................................... Preface to Chapter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purpose of the Chapter . . . . . . . . . . . . . . . . . . . . . . . . . . . . Outline of Chapter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Nature, Development, and Use of the TOC TP . . . . . . . . . . Overview of TP and Their History and Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The TP Tools . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The TOC TP Literature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Nature of Other Approaches to Problem-Solving and Decision Making . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Relationship of Problem-Solving Methods to Problem-Solving Activity . . . . . . . . . . . . . . . . . . . . . . . . Unstructured ApproachesManagement on the Hoof ................................... Formal or Structured Approaches . . . . . . . . . . . . . . . . . . . Lessons for TOC from the Literature . . . . . . . . . . . . . . . . . . . . . . . Issues Emerging from the TOC Literature . . . . . . . . . . . . The Nature of the TOC Literature Vis--Vis Other Literatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Suggested Topics for a Self-Audit of TOC . . . . . . . . . . . . The Nature and Use of the TOC Thinking Processes Revisited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Understanding the Relationship of the TOC TP to Problem-Solving Activity . . . . . . . . . . . . . . . . . . . . . . . . The Philosophical Basis of the TOC TP . . . . . . . . . . . . . . . Summary Insights from Classicatory Mapping of the TOC TP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

631 631 631 632 632 632 633 634 636 641 641 641 643 650 650 650 651 653 653 655 658

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ContentsSummary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . What Has Been Covered in This Chapter . . . . . . . . . . . . . Findings and Recommendations . . . . . . . . . . . . . . . . . . . . Links to Other Chapters in the TP Section . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . About the Authors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Daily Management with TOC Oded Cohen . . . . . . . . . . . . . . . . IntroductionPurpose of the Chapter . . . . . . . . . . . . . . . . . . . . . Solving Daily Problems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Problem Investigation and Solution Developmentthe Cloud . . . . . . . . . . . . . . . . . . . . . . . . Inner Dilemmas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Day-to-Day Conicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reducing Fire Fighting . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dealing with the Undesirable Effects (UDEs)the UDE Cloud . . . . . . . . . . . . . . . . . . . . . . . . Example of a System UDE CloudProduction . . . . . . . . . Example of a System UDE CloudRetail . . . . . . . . . . . . . Addressing Multiple Problemsthe Consolidated Cloud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . From a Problem to the Solution Implementation . . . . . . . . . . . . The TOC Methodology for Problem Solving the U-Shape . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Strengthening the SolutionsDealing with NBRs . . . . . The Intermediate Objective (lO) Map and Implementation Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . ConclusionProblem Solving the TOC Way . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . About the Author . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Thinking Processes Including S&T Trees Lisa J. Scheinkopf . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Introduction: Anybody Can Be a Jonah! . . . . . . . . . . . . . . . . . . . . The Basic Building BlockCause-and-Effect Logic . . . . . . . . . . Basic Terms and Mapping Protocol . . . . . . . . . . . . . . . . . . . . . . . . Tools for Daily Decision Making and Problem Solving . . . . . . . Negative Branch Reservation (NBR) . . . . . . . . . . . . . . . . . . . . . . . Evaporating Cloud (EC) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Integrated TOC Thinking Processes . . . . . . . . . . . . . . . . . . . . Reinforcing the Mentality of a ScientistJonahs Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . What to Change? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Current Reality Tree (CRT) . . . . . . . . . . . . . . . . . . . . . . . . . Evaporating Cloud (EC) . . . . . . . . . . . . . . . . . . . . . . . . . . . The Snowake Method . . . . . . . . . . . . . . . . . . . . . . . . . . The Bank Case: What to Change, Snowake Approach . . . . . . . The Three-Cloud Method . . . . . . . . . . . . . . . . . . . . . . . . 660 660 660 663 664 669 671 671 672 672 676 685 691 697 698 701 704 711 712 715 718 723 726 727 729 729 730 733 736 737 739 746 749 751 751 751 752 753 755

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ContentsTo What to Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Evaporating Cloud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Future Reality Tree and Negative Branch Reservation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . How to Cause the Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Prerequisite Tree . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Transition Tree . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Strategy & Tactic Tree . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The First Step: The Goal . . . . . . . . . . . . . . . . . . . . . . . . . . . Communication, Alignment, and Synchronization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Implementing an S&T . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Using the TPs to Implement an S&T . . . . . . . . . . . . . . . . . The Knowledge Organizer . . . . . . . . . . . . . . . . . . . . . . . . . Chapter Wrap-Up ...................................... References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . About the Author . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Appendix B: Categories of Legitimate Reservation1 . . . . . . . . . . 26 TOC for Education Kathy Suerken . . . . . . . . . . . . . . . . . . . . . . . . . Why Change? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . What to Change? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . What to Change to? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . How to Cause the Change? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Cloud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Logic Branch . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Ambitious Target Tree . . . . . . . . . . . . . . . . . . . . . . . . . A Process of Ongoing Improvement . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . About the Author . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Theory of Constraints in Prisons Christina Cheng . . . . . . . . . . . Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . What To Change? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preliminary Study . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Stigmatization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Negative Peer Pressure . . . . . . . . . . . . . . . . . . . . . . . . . . . . Importance of Face . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . What to Change to? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Self-Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Why TOC? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . How to Effect the Change? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Course Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delivery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 757 760 760 763 763 765 769 769 774 775 776 781 781 782 783 783 787 787 789 790 791 791 796 800 803 810 812 813 813 814 814 815 817 818 820 820 820 823 823 826 834

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1

For Appendices A and C to G see http://www.mhprofessional.com/TOCHandbook.

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ContentsResults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Quantitative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Qualitative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Follow-on Implementations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Future Recommendations ............................... Summary and Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . About the Author . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 836 836 836 839 839 840 841

Section VII TOC in Services28 Services Management Boaz Ronen and Shimeon Pass . . . . . . . . . . . Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Challenges in Service Management . . . . . . . . . . . . . . . . . . Why the Need for Change? . . . . . . . . . . . . . . . . . . . . . . . . . Survey of Service Organizations TOC Literature . . . . . . . . . . . . Literature Mapping and Observations . . . . . . . . . . . . . . . Limitations of Current Research . . . . . . . . . . . . . . . . . . . . Brief Assessment of Service Management . . . . . . . . . . . . . . . . . . What to Change? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Why Is TOC Not Yet Popular Among Service Organizations Managers? . . . . . . . . . . . . . . . . . . . . . . . What Do TOC and Focused Management Have To Offer? ................................ TOC Concepts and Tools for Service Organizations . . . . . . . . . . The Seven Focusing Steps of TOC .................. Bottleneck Management . . . . . . . . . . . . . . . . . . . . . . . . . . . Exploiting Permanent Bottlenecks . . . . . . . . . . . . . . . . . . . Subordinating Everybody Else to the Permanent Bottlenecks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Elevating the Permanent Bottlenecks . . . . . . . . . . . . . . . . Response Time Reduction . . . . . . . . . . . . . . . . . . . . . . . . . . Performance Measures . . . . . . . . . . . . . . . . . . . . . . . . . . . . Costing, Pricing and Decision-Making . . . . . . . . . . . . . . . Quality Enhancement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . How to Implement the Change? . . . . . . . . . . . . . . . . . . . . . . . . . . The Remaining Chapters in This Section . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . About the Authors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Theory of Constraints in Professional, Scientic, and Technical Services John Arthur Ricketts . . . . . . . . . . . . . . . . . . . . . Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Barriers to Adoption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Challenges in the PSTS Sector . . . . . . . . . . . . . . . . . . . . . . What TOC Has to Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . 845 845 846 846 847 847 848 849 849 849 850 850 850 851 851 852 853 853 854 854 854 855 855 856 858 859 859 860 860 862 862

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ContentsWhat to Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expertise and Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Service Delivery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Measurement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Marketing and Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . What to Change to . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Replenishment for Services . . . . . . . . . . . . . . . . . . . . . . . . . Critical Chain for Services . . . . . . . . . . . . . . . . . . . . . . . . . . Drum-Buffer-Rope for Services . . . . . . . . . . . . . . . . . . . . . Throughput Accounting for Services . . . . . . . . . . . . . . . . Nonstandard TOC Applications . . . . . . . . . . . . . . . . . . . . How to Cause the Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Buy-in . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . How Practitioners Can Get Started . . . . . . . . . . . . . . . . . . How Researchers Can Contribute . . . . . . . . . . . . . . . . . . . What Students Should Know . . . . . . . . . . . . . . . . . . . . . . . Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . About the Author . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30Alex Klarman and Richard Klapholz

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863 864 864 865 866 867 867 868 869 870 872 873 873 874 874 875 875 877 877 878 879 879 880 881 882 887 888 889 889 889 889 890 890 891 891 891 891 892 892 892 892 892 893 893

Customer Support Services According to TOC ............................ IntroductionThe Need for Change . . . . . . . . . . . . . . . . . . . . . . . What Is Customer Support (Also Known as Technical Support)? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Steady Erosion of Income in the CS Area . . . . . . . . . . . . . The Warranty Trap . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . What to Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . What to Change to . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . AB ........................................... AC ........................................... BD ........................................... CD ........................................... DD ........................................... Differential Pricing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Array of Service Offerings . . . . . . . . . . . . . . . . . . . . . . . . . . . . Basic Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Extended Basic Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . Limited FSE Visits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Extended FSE Visits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Complementing FSE Visits . . . . . . . . . . . . . . . . . . . . . . . . . Complementing Extended FSE Visits . . . . . . . . . . . . . . . . Parts Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Important Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other Service Offerings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Value-Added Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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ContentsLaunching of Expert Systems . . . . . . . . . . . . . . . . . . . . . . . Third-Party Maintenance (or TPM) . . . . . . . . . . . . . . . . . . Installations, Implementations, and Projects . . . . . . . . . . How to Implement the Change . . . . . . . . . . . . . . . . . . . . . . . . . . . Key Decisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Policies and Measurements . . . . . . . . . . . . . . . . . . . . . . . . . Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . About the Authors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Viable Vision for Health Care Systems Gary Wadhwa . . . . . . . Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Tools for Improvement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Theory of Constraints . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lean . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Six Sigma . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Undesirable Effects of the Current Health Care System ...... Patients Perspective . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Doctors Perspective .............................. Insurers Perspective . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Hospitals Perspective . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Business Owners Perspective . . . . . . . . . . . . . . . . . . . . . . Governments Perspective . . . . . . . . . . . . . . . . . . . . . . . . . Dening the Goal of the Health Care System . . . . . . . . . . . . . . . Improving Quality and Quantity of Patient Flow through Health Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Elaborating on the 5FS ............................ Thinking Processes for Identifying Root Cause of Physical Constraints to the Flow of Patients . . . . . . . . . . . . . . . . . . . . . . Throughput Accounting for Performance Measurement and Decision Making in Health Care . . . . . . . . . . . . . . . . . . . . Strategy and Tactic Tree to Implement and Achieve the Viable Vision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Parallel Assumptions ............................. Necessary Assumptions . . . . . . . . . . . . . . . . . . . . . . . . . . . Sufciency Assumptions . . . . . . . . . . . . . . . . . . . . . . . . . . . An Example . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A Case Study of VV Success . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . General Discussion ..................................... References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . About the Author . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Appendix A: Strategy and Tactic Tree for Viable Vision ...... Addendum: Excerpt from the Book Vision for Successful Dental Practice by Gerry Kendall and Gary Wadhwa . . . . . . . Steps to success for a private, academic, or government-run dental practice . . . . . . . . . . . . . . . . . . 893 893 894 895 895 895 896 897 898 899 899 900 900 900 902 902 902 902 903 903 904 904 904 906 906 915 917 919 919 920 921 921 926 926 927 927 928 951 951

Contents32 TOC for Large-Scale Healthcare Systems Julie Wright . . . . . . . Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Why Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Why Healthcare Systems Need to Improve . . . . . . . . . . . The Goal of Healthcare . . . . . . . . . . . . . . . . . . . . . . . . . . . . What to Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Where to Start: Government or Facility? . . . . . . . . . . . . . . The Organic Nature of Healthcare Facilities . . . . . . . . . . The Human Engine of Healthcare . . . . . . . . . . . . . . . . . The Constantly Evolving Workforce . . . . . . . . . . . . . . . . . The Reality of Healthcare . . . . . . . . . . . . . . . . . . . . . . . . . . Current Problem Solving Techniques . . . . . . . . . . . . . . . . Adapting Industrys Solutions for Healthcare . . . . . . . . . What to Change to . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Where Should the Constraint Reside in Healthcare? . . . . . . Starting an Organization on a Process of Ongoing Improvement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Providing a Safe Platform and an Effective Mechanism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Building the Current Reality Tree (CRT) of a Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . How to Cause the Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Training the Process Units . . . . . . . . . . . . . . . . . . . . . . . . . . The Process of Ongoing Improvement . . . . . . . . . . . . . . . . . . . . . Providing a Knowledge Base for Achieving the Goal Now . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Providing the Knowledge Base for Achieving the Goal in the Future . . . . . . . . . . . . . . . . . . . . . . . . . . . Addressing the New Core Problem . . . . . . . . . . . . . . . . . . Leaving a TOC Legacy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proof of Concept ....................................... References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . About the Author . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 955 955 956 956 957 958 958 960 960 961 961 963 963 965 965 965 967 968 970 970 970 970 974 975 976 976 978 978 979

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Section VIII TOC in Complex Environments33James R. Holt and Lynn H. Boyd

Theory of Constraints in Complex Organizations ............................... Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Denition of Complexity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Major Problems with Complex Organizations . . . . . . . . . . . . . . . Undesirable Effects of Complex Organizations ................................. The Core Conict for Complex Organizations .................................

983 983 983 985 985 986

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ContentsThe Direction of the Solution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . What the Market Expects (AB) . . . . . . . . . . . . . . . . . . . . Adding Capabilities (BD) . . . . . . . . . . . . . . . . . . . . . . . . Predictable Response to Customers (AC) . . . . . . . . . . . Avoiding Disruptions (CD ) . . . . . . . . . . . . . . . . . . . . . . Doing Both (DD ) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Additional Understanding of Complex Organizations . . . . . . . Finding an Injection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Breakthrough Injection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Concepts in Organization Complexity . . . . . . . . . . . . . . . Categories of Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . Flows in Complex Organizations ................... Flow Control with Critical Chain . . . . . . . . . . . . . . . . . . . . A Breakthrough Injection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Denition of the Common Simple Measure . . . . . . . Using TDD: An Example . . . . . . . . . . . . . . . . . . . . . . . . . . . A Closer Look at the Distribution Department . . . . . . . . Units to Which TDD Applies: Degree of Impact on Throughput . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Alternatives for When TDD Does Not Seem to Fit . . . . . Inventory Dollar Days ............................ Summary of Measures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Focusing for Balance (and Changing the Culture of the Company) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Usefulness of Dollar Day Measures in General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A Breakthrough Injection Is Critical, but It Is Rarely Sufcient . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tools for Resolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Controlled Resource Allocation . . . . . . . . . . . . . . . . . . . . . Challenge of the Future . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Value of Everyone Measured by the Same Simple Measures . . . . . . . . . . . . . . . . . . . . . . . . . . Leadership Certication . . . . . . . . . . . . . . . . . . . . . . . . . . . Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . About the Authors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Applications of Strategy and Tactics Trees in Organizations Lisa A. Ferguson, PhD . . . . . . . . . . . . . . . . . . . . . . . Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . On Becoming an Ever-Flourishing Organization . . . . . . . . . . . . The Basic Structure of an S&T Tree . . . . . . . . . . . . . . . . . . . . . . . . The Top of the VV S&T Trees . . . . . . . . . . . . . . . . . . . . . . . The Retailer S&T Tree . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Level 2 of the Retailer S&T Tree . . . . . . . . . . . . . . . . . . . . . Overview of Level 2 of VV S&T Trees . . . . . . . . . . . . . . . . 987 987 987 987 988 988 988 991 992 992 993 993 995 998 999 1000 1002 1003 1004 1005 1007 1008 1008 1009 1009 1010 1010 1011 1011 1012 1012 1013 1015 1015 1016 1017 1019 1022 1022 1026

ContentsLevel 3 of the Retailer S&T Tree . . . . . . . . . . . . . . . . . . . . . General Overview of the VV S&T Tree Structure . . . . . . Levels 4 and 5 of t