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A Formula for Success - Lean & TOC

Posted: 12/02/2010
Satya S. Chakravorty
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Many businesses prioritize improvement initiatives haphazardly, says guest contributor Satya S Chakravorty, professor at Kennesaw State University, and find that they are not achieving overall business objectives. In this article Chakravorty looks at how the Theory of Constraints (TOC) can be applied to get better results.

Organizations launch improvement initiatives such as Lean events on the assumption that they will be making substantial progress towards realising overall business objectives. But after investing significant resources and time, some businesses find that they aren't seeing the results they want. Why?

First, let's look at Lean. Lean initiatives involve performing value stream mapping of a process, identifying value added and non-value added activities, and then reducing non-value added activities using Lean tools. And while there are many Lean tools such as Kanban (a.k.a. one piece flow) or cellular manufacturing, Kaizen events are often used to reduce non-value added activities.

Lean events typically run four (4) to six (6) weeks consisting of two (2) weeks of initial analysis, two (2) weeks of training and preparation, one (1) week of conducting the actual event, and one (1) week of stabilization.

Events are prioritized with the objective of reducing non-value added activities as much as possible.

Consider, for instance, a process consisting of three work centers: work center A, work center B, and work center C. After performing value stream mapping, the amount of non-value added activities (e.g. waste of movement) per work center was identified as the following: work center A has 30%, work center B has 20%, and work center C has 10%.


Figure 1
In order to demonstrate high Return on Investment (cost savings in waste reduction/cost of a Lean event), the first Lean event is scheduled at work center A (because that's where the most non-valued added work was identified), the second Lean event at work center B, and third Lean event at work center C.
Sometimes, during an event, a high (e.g., 85%) arbitrary target of reduction of non-value added activities is pursued with a significant investment of resources. Businesses assume that this will help them make substantial progress towards overall goals. The event kicks off to great fanfare, maybe with the participation of the President or VP of Operations, department heads, all the process owners, and even the official photographer to record before and after event pictures, (and, of course to track visuals of phenomenal progress).
But after investing so many resources and holding several events, some businesses find that they aren't where they would like to be. They may not, for instance, be seeing the desired increase in throughput, a decrease in inventory (finished goods, work in process, and raw material) or a decrease in operational expenses.
The main reason for underachieving performance is because Lean events are not prioritized with the intention of improving overall objectives.
One way to improve this is to "intelligently mix" or synergistically integrate improvement tools such as Lean with Theory of Constraints (TOC).
Theory of Constraints
Theory of Constraints (TOC) principles are an extension of a book called The Goal. Since its introduction, this book has inspired practitioners and academicians alike to investigate TOC principles.
According to TOC, businesses must first define goals and clearly state overall objectives in terms of throughput, inventory, and operational expenses. All decisions within the organization should be geared on moving towards these goals.
TOC principles state that the output of any system is limited by the system’s bottleneck, which is defined as anything that limits the system’s performance with respect to its goals. Therefore, prioritizing Lean events based on the system’s bottleneck is a way to move an organization toward its goals.
Consider the process discussed early, consisting of three work centers and assume the overall objective is to increase throughput. The output of a system is limited by the system's bottleneck, work center C, and is shown as the narrowest section of the pipe. Regardless of its location, the narrowest section of any pipe dictates the output of the entire pipe.

Figure 2
Lean events should be prioritized based on the narrowest section of the pipe. The first lean event should be scheduled at work center C, and sufficient non-value added activities should be reduced to yield a throughput equal to work center B. In other words, the narrowest section of the pipe is widened to the second narrowest section, and no more.
Figure 3
The objective is to maximize throughput not maximize reduction of non-value added activities. Within an event, pursuing an arbitrary high target of reduction in non-value added activities, with a significant investment of resources, is simply a wrong approach. At this point an assessment should be made depending on whether the objective, in terms of increase in throughput, has been realized. If the objective has been accomplished, there is no compelling reason to schedule additional Lean events, as additional Lean events will not increase throughput. If the objective has not been accomplished, then a second Lean event should be scheduled at both work centers B and C, and sufficient non-value added activities are reduced to yield a throughput equal to work center A. Additional Lean events may be scheduled if necessary.
Recipe for a Lean TOC mix
The methodology to intelligently mix Lean and TOC can be achieved in four steps:
1. Value Identification: In Lean vernacular, the term value stream mapping is frequently used but without much discussion of what is a value. A good working definition of value needs to be established with overall objectives such an increase (e.g., 20%) in throughput or decrease in inventory or decrease in operational expenses.
2. Perform Value Stream Mapping: This is used to identify value added and non-value added activities in the process.
3. Bottleneck Identification: This is an important step because we know the system’s performance is limited by its bottleneck. In other words, a chain is only as strong as its weakest link.
4. Prioritize Lean Events: This stage uses the bottleneck information, and then carries out as many lean events as necessary, to achieve the objectives.
Conclusions
Powerful solutions for businesses can be developed with intelligently mixing various improvement tools. The focus of this illustration was Lean and TOC; similar arguments can be made for Six Sigma and TOC. Six Sigma initiatives often encounter problems with prioritization of black belt or green belt projects. Businesses often prioritize projects haphazardly and it is not surprising to find that many projects do not improve their overall business objectives. The TOC principles can be used to set the objectives and prioritize projects. It is important to understand when tools are optimally mixed; a completely new methodology is created. In a similar fashion, when Hydrogen and Oxygen are optimally mixed, a completely new compound, water, is created.
References
1. Goldratt, E.M., and Cox R. 2006 "The Goal", North River Press, Croton-on-Hudson, NY.
2. Womack, J.P., Jones, D.T., 2003. "Lean Thinking", Simon and Schuster, New York, NY.

Thank you, for your interest in A Formula for Success - Lean & TOC.