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12 de fev de 2013

Theory of Constraints' Five Steps


To break focus on local optima the Theory of Constraints (TOC) has an methodology called "The Five Steps", which should provide managers to learn and work to break constraints instead of just accept their existence:
Step 1: Identify the system’s constraint
First of all, managers should identify where is the constraint – or constraints – in the system. No improvement would be possible if the weakest link in the chain is not found. But sometimes this might be difficult and would request some guesses and trials.
At several sites managers told us that they had been unable to figure out where the bottleneck was because of the chaos that had resulted from applying conventional shop control techniques over the years. Rather than giving up, they picked a resource near the middle of the system to be the "designated constrain" and then proceeded to install a DBR [Drum-Buffer-Rope] system. This procedure permitted some progress in getting the production process under control. If the initial guess at the location of the constraint was incorrect, the system eventually would let them know by the presence of unplanned work-in-process inventory accumulating in front of the real constraint and perhaps by holes in the protective buffer in front of the "designated constraint". (Noreen et al., 1995, p. 43)
But not necessarily the constraint should be inside the system. In fact, the system could be restrained by an outside issue like demand, infrastructure, and so on. This does not necessarily means that it is not possible to manage the limitation. Outside constraints can be related to policies and controls stated in the past and have no application in current reality.
Goldratt believes that the physical constraints on the shop floor usually can be dealt with very quickly once they have been identified. As soon as the constraints inside the factory have been broken, the constraint shifts elsewhere. Quite often it will appear that the market is the constraint – there is insufficient demand for the company’s products. In such a situation, it appears that the constraint is outside of the company and therefore beyond its control. However, Goldratt firmly believes that in the vast majority of cases, the real constraint is some policy inside the company. “We very rarely find a company with a real market constraint, but rather, with devastating marketing policy constraints.” For example, a company may have a policy of never cutting its prices below its fully allocated product costs. (Noreen et al., 1995, p. 43.)
Step 2: Decide how to exploit the system’s constraint
After identification of the constraint, the next step is to make it's output as effective as possible. Nothing should be wasted in the constrained resource, since any problem that reduces it's output rate affects directly the system’s performance and the sales level. Managers must seek opportunities to make adaptations in order to improve the constraint’s capacity and solutions to avoid any kind of disturbance in this resource (quality standards, staff availability, maintenance, and so on).
Potential jobs also should be prioritized in terms of how effectively they use the constrained resource. The constraint is wasted if it is used to process one job when a different job could have produced more profit. Such decisions can be made by prioritizing potential jobs according to the amount of throughput they yield per unit of the constrained resource. (This method is exactly the same as prioritizing products based on the contribution margin per unit of the constraint, which has been included as a constraint management technique in management accounting textbooks for decades). (Noreen et al., 1995, p. 44)
Step 3: Subordinate everything else to the above decision
Nonconstraint operations should be ruled by the constraint resource. It means that every part of the system needs to be aligned just to support the constraint, even if it implies reducing the efficiency on noncostraint resources. This is a turnaround from the culture of focus in cost reduction everywhere.
This is a major shift for management accounting. Caspari stated it clearly when he wrote, “The question becomes: What must this unconstrained area do to protect the exploitation decisions? rather than: What can this area do by itself to increase the bottom line?” The obvious conclusion is that nonconstraint should be measured on how well they support the constraint and definitely not on local “cost” minimization actions. Any decision regarding nonconstrained resources need to be answered in light of how the actions will involve or impact the constraint. The focus is on throughput maximization, not cost minimization. (Noreen et al., 1995, p. 45)
Step 4: Elevate the constraint
After doing whatever is possible to exploit the constrained resource and subordinating nonconstrained resources to balance the system according to the constraint’s output, if the overall output is still inadequate then it might be necessary to make some investment to acquire more capacity in the constrained resource (elevate the constraint).
Elevating the constraint means getting more of it. Some of the work that ordinarily would go through the bottleneck constraint might be off-load to outside shops. If the bottleneck is a machine, another can be acquired. At most of the sites we visited, recent equipment acquisitions had focused on elevating the constraint. We found several examples in which very inexpensive used equipment with limited capabilities was used to off-load some of the work from a constraint. Ordinarily, this equipment would have been cast off as too inefficient to use. Overtime, or even another shift, often was used to add capacity to the constraint. At one site, the standard product used a bottleneck, but the premium product did not. Managers decided to give free upgrades to the premium product. The decision never would have been made under their old operation rules, which emphasized "cost" minimization, because the premium product requires more total machine time (but on the nonbottlenecks) than the standard product and hence is more "expensive". Almost every site we visited has been able to increase the overall capacity of the plant by effective constraint management, to the point where throughput ordinarily was no longer limited by the capacity of the plant. The constraint had shifted outside of the plant to the market or to some other part of the organization. (Noreen et al., 1995, p. 46)
Step 5: If a constraint has been broken, go back to Step 1. Do not allow inertia to cause a system constraint
The Five Steps methodology is an ongoing process. After a constraint is discovered and broken, a new constraint will immediately appear. At this point it is necessary to go back to the beginning and start over.
An optimal solution deteriorates over time, as the system’s environment changes. As Goldratt says, "Yesterday solution becomes today’s historical curiosity." (‘Isn’t that curious?! Why do you suppose they ever did that?"). A process of ongoing improvement is necessary to update and maintain the efficiency (and effectiveness) of a solution. Inertia is the worst enemy of a process of ongoing improvement. The attitude that "We’ve solved that problem – no need to revisit it" hurts continuous improvement efforts. (Dettmer, 1997, p. 13)
Here is the great risk in applying Theory of Constraints in an organization: it requires managers with an open mind, capable to overview the system and point out the next opportunity for improvement.
The story we are told at one site reinforces the importance of overcoming inertia. The organization had substantial initial successes with TOC, but stagnation set in because of a change in constraints. Because of a dramatic shift in demand toward more complex products, the constraint had shifted to product engineering. The shift created a number of problems, including a tendency for jobs to be released by engineering in big bursts that would overwhelm the productive capacity of the plant. There had been no visible attempt to overcome this problem using TOC principles. It did not even seem to occur to managers to use TOC principles to attack the problem. Such a situation probably is a consequence of the tendency to view TOC as a set of tools for production and not as more generalized tools that can be applied to engineering, marketing, or other nomanufacturing functions. (Noreen et al., 1995, p. 47)
This way TOC is a continuous challenge to the status quo, and emotional resistance can be an expected outcome in many situations.
Any improvement is a change.
Not very change is an improvement but certainly every improvement is a change.
We cannot improve something unless we change it. Anyone who has worked in an organization for even a few months knows that we cannot escape the validity of the following step:
Any change is a perceived threat to security.
There will always be someone who will look at the suggested change as a threat on their own security.
Now the door is wide open for the unpleasant conclusion. What is the unavoidable result when you threaten somebody’s security?
Emotional resistance!
Anybody who thinks we can overcome an emotional resistance with logic, was probably never married. We can only overcome emotion with a stronger emotion. (Goldratt, 1990, p. 10)
The Five Steps process sets a technique to focus on problems and improve the system’s output. But due to aspects related to change and the risk to be understood as a threat, it’s necessary a deeper analysis of each situation in order to achieve participation and support instead of resistance and inertia.
         
BIBLIOGRAPHY:
DETTMER, William H. Goldratt’s Theory of Constraints: a systems approach to continuous improvement. Milwaukee: ASQC Quality Press, 1997.
GOLDRATT, Eliyahu M. What is This Thing Called Theory of Constraints. New York: North River, 1990.
NOREEN, Eric; SMITH, Debra, MACKEY, James T. The Theory of Constraints And Its  Implications For Management Accounting. North River Press, 1995.

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