The Goal: A Process of Ongoing Improvement, page 41
"He didn’t say that,’’ Stacey cuts me off.
"I don’t understand,’’ I say. "If the bottlenecks are not overloaded then...’’
Maintaining an expressionless face she says, "From time to time the bottlenecks are starved. Then the work comes to them in a big wave.’’
"And then,’’ Bob continues, "we don’t have a choice but to go into overtime. That’s the case all over the plant. It looks like the bottlenecks are moving all the time.’’
I sit quietly. What can we do now?
"If it were as easy as determining some overloads,’’ Stacey says, "don’t you think we would easily solve it?’’
She is right. I should have more confidence in them.
"My apologies,’’ I mutter.
We sit quietly for a minute. Then Bob speaks up, "We can’t handle it by shuffling priorities and going into overtime. We’ve already tried that for several days. It might help save some specific orders but it throws the entire plant into chaos and then many more orders are in trouble.’’
"Yes,’’ Stacey agrees. "Brute force seems to push us more and more into the spiral. That’s why we asked for this meeting.’’
I accept their criticism.
“Okay, it’s obvious that we have to approach it systematically Anyone got an idea where to begin?”
"Maybe we should start by examining a situation where we have one bottleneck.’’ Ralph suggests hesitantly.
"What’s the point?’’ Bob objects. "We now have the opposite. We are facing many, traveling bottlenecks.’’ It’s apparent that they’ve had that discussion before.
I don’t have any other suggestion, nor does anybody else. I decide to gamble on Ralph’s hunch. It worked in the past.
"Please proceed,’’ I say to Ralph.
He goes to the board and takes the eraser.
"At least don’t erase the five steps,’’ Bob protests.
"They don’t seem to help us much,’’ Ralph laughs nervously. "Identify the system’s constraints,’’ he reads. "That is not the problem now. The problem is that the bottlenecks are moving all over the place.’’
Nevertheless, he puts the eraser down and turns to the flip chart. He draws a row of circles.
"Suppose that each circle represents a work center,’’ he starts to explain. "The tasks are flowing from the left to the right. Now, let’s suppose that this one is a bottleneck,’’ and he marks one of the middle circles with a big X.
"Very nice,’’ says Bob sarcastically. "Now what?’’
"Now let’s introduce Murphy into the picture,’’ Ralph responds calmly. "Suppose that Murphy hits directly on the bottleneck.’’
"Then the only thing left to do is to curse wholeheartedly,’’ Bob spits. "Throughput is lost.’’
"Correct,’’ Ralph says. "But what happens when Murphy hits anywhere before the bottleneck? In such a case, the stream of tasks to the bottleneck is temporarily stopped and the bottleneck is starved. Isn’t this our case?’’
"Not at all,’’ Bob brushes it away. "We never operated that way. We always make sure that some inventory accumulates in front of the bottleneck, so when an upstream resource goes down for some time, the bottleneck can continue to work. As a matter of fact, Ralph, we had so much inventory there that we had to choke the material release to the floor. Come on,’’ he says impatiently, "that is exactly what you’re doing on your computers. Why do we have to regurgitate what we all know by heart?’’
Ralph goes back to his seat. "I just wondered if we really know how much inventory we should allow to accumulate in front of the bottlenecks?’’
"Bob, he has a point,’’ Stacey remarks.
"Of course I have,’’ Ralph is really annoyed. "We wanted three days’ inventory in front of each bottleneck. I started with releasing material two weeks before it was due at the bottleneck. Then it turned out that that’s too much, so I cut it to one week and everything was okay. Now it’s not okay.’’
"So increase it back,’’ Bob says.
"I can’t,’’ Ralph sounds desperate. "It will increase our lead time beyond what we currently promise.’’
"What’s the difference?’’ Bob roars. "In any event we’re sliding on our promises.’’
"Wait, wait,’’ I cut into their quarrel. "Before we do anything drastic, I want to understand better. Ralph, let’s go back to your picture. As Bob pointed out, we do hold some stock in front of the bottleneck. Now let’s suppose that Murphy hits somewhere before the bottleneck, then what?’’
"Then,’’ Ralph says patiently, "the flow of parts to the bottleneck stops, but the bottleneck, using the stock that accumulated right in front of it, continues to work. Of course that eats into the stock and so, if we don’t build enough stock to start with, the bottleneck might go down.’’
"Something doesn’t match.’’ Stacey says. "According to what you just said, we have to guarantee the uninterrupted work of the bottleneck by building stock that will last more than the time to overcome Murphy on the upstream resource.’’
"Correct,’’ says Ralph.
"Don’t you see that it can’t be the explanation?’’ Stacey says.
"Why?’’ Ralph doesn’t get it, and neither do I.
"Because the time to overcome a problem upstream did not change, we haven’t faced any major catastrophies lately. So if the stock was sufficient to protect the bottlenecks before, it must be sufficient now as well. No Ralph, it’s not a matter of insufficient stocks, it’s simply new wandering bottlenecks.’’
"I guess you’re right.’’
Maybe Ralph is convinced by Stacey’s argument, but I’m not.
"I think that Ralph might be right after all,’’ I say. "We just have to carry his line of thought a little further. We said that when one of the upstream resources goes down, the bottleneck starts to eat into its stock. Once the problem is corrected, what do all the upstream resources have to do? Remember, if there is one thing that we can be sure of, it’s that Murphy will strike again.’’
"All upstream resources,’’ Stacey answers, "now have to rebuild the inventory in front of the bottleneck, before Murphy hits again. But what’s the problem? We released enough material for them.’’
"It’s not the material that concerns me,’’ I say. "It’s the capacity. You see, when the problem that caused the stoppage is overcome, the upstream resources not only have to supply the current consumption of the bottleneck, at the same time they have to rebuild the inventory.’’
"That’s right,’’ Bob beams. "That means that there are times when the non-bottlenecks must have more capacity than the bottlenecks. Now I understand. The fact that we have bottlenecks and non-bottlenecks is not because we designed the plant very poorly. It’s a must. If the upstream resources don’t have spare capacity, we won’t be able to utilize even one single resource to the maximum; starvation will preclude it.’’
"Yes,’’ Ralph says. "But now the question is, how much spare capacity do we need?’’
"No, that is not the question,’’ I gently correct him. "Just as your previous question, ‘how much inventory do we need?’ is not the real question either.’’
"I see,’’ Stacey says thoughtfully. "It’s a trade-off. The more inventory we allow before the bottleneck, the more time is available for upstream resources to catch up, and so, on average, they need less spare capacity. The more inventory the less spare capacity and vice versa.’’
"Now it’s clear what’s happening,’’ Bob continues. "The new orders have changed the balance. We took more orders, which by themselves didn’t turn any resource into a new bottleneck, but they did drastically reduce the amount of spare capacity on the non-bottlenecks, and we didn’t compensate with increased inventory in front of the bottleneck.’’
Everybody agrees. As usual, when the answer finally emerges it’s plain common sense.
"Okay Bob,’’ I say. "What do you think you should do now?’’
He takes his time. We wait.
Finally he turns to Ralph and says, "We have outstanding promises for very short delivery times on only a small percent of our order intake. Can you identify those orders on an on-going basis?’’
"No problem,’’ answers Ralph.
"Okay,’’ Bob continues. "For those orders, continue to release material one week in advance. For all others, increase it to two weeks. Let’s hope that that will be enough. Now, we have to rebuild the inventory in front of the bottlenecks and in front of assembly. Stacey, take all the necessary steps to put the plant, and I mean all the non-bottlenecks, to work throughout the weekend. Don’t accept any excuses, it’s an emergency. I’ll notify sales that until further notice they should not promise any delivery in less than four weeks from receipt of the order. It will jeopardize their new campaign, but that’s life.’’
Right in front of our eyes the baton has been passed. It’s obvious who is the boss now. I feel proud and jealous at the same time.
"Bob has taken over very nicely,’’ Lou says as we enter my office. At least this front is covered.’’
"Yes,’’ I agree. "But I hate to put him in a position where his first independent actions are so negative.’’
"Negative?’’ Lou asks. "What do you mean by negative?’’
"All the actions he is forced to take are leading in the wrong direction.’’ I answer. "Of course, he doesn’t have any choice, the alternative is much worse, but still. . . .’’
"Alex, I’m probably thicker than usual today, but I really don’t understand. What do you mean by ‘leading in the wrong direction?’’’
"Don’t you see?’’ I’m irritated by the whole situation. "What is the unavoidable result of telling sales that they should quote four weeks’ delivery? Remember, just two weeks ago we went out of our way to persuade them to quote two weeks. They didn’t have much confidence then. Now, it will cause them to drop the entire sales campaign.’’
"What else can we do?’’
"Probably nothing. But this doesn’t change the end result; future throughput is down.’’
"I see,’’ says Lou. "On top of it, overtime is up significantly; putting the plant to work on the weekend will consume the entire overtime budget for the quarter.’’
"Forget the budget,’’ I say. "When Bob has to report it, I’ll be the divisional president. The increased overtime is increasing operating expense. The point is that throughput will be down, operating expense will be up and increasing the buffers means that inventory will be up. Everything is moving in the opposite direction of what it should.’’
"Yup,’’ he agrees.
"Somewhere, I’ve made a mistake,’’ I say. "A mistake that now is causing us to pull back. You know Lou, we still don’t know what we’re doing. Our ability to see what’s in front of us resembles that of moles. We’re reacting rather than planning.’’
"But you’ve got to agree that we are reacting much better than before.’’
"That’s not a real comfort Lou, we’re also moving much faster than before. I feel as if I’m driving looking only in the rear view mirror, and then, when it’s almost too late, we make last minute course corrections. It’s not good enough. It is definitely not good enough.’’
40
I’m driving back from headquarters with Lou. We’ve been doing this every day for the last two weeks. We are not in what one might call a cheerful mood. Now we know every little detail of what’s going on in the division, and the picture doesn’t look good at all. The only bright spot is my plant. No, I should get used to the fact that it’s Donovan’s plant. And it’s not a bright spot, that’s a gross understatement. It’s the real savior.
Donovan succeeded getting everything under control before the clients had any reason to complain. It will take him some time to regain the confidence of our sales people, but with me pressing from the other side it will not take long before it will be okay.
This plant is so good that Lou and I were led astray for some time. The reports on the division gave us the impression that the situation is quite good. Only when we went through the elaborate work of separating out Donovan’s plant was the real picture exposed. And it’s not pretty. It’s actually quite disastrous.
"Lou, I think we did the exact thing that we knew we shouldn’t do.’’
"What are you talking about?’’ he says. "We haven’t done anything yet.’’
"We have gathered data, tons of data.’’
"Yes, and there’s a problem with the data,’’ he says. "Frankly, I’ve never seen such a sloppy place. Every report is missing at least back-up details. You know what I found today? They don’t even have a report on late receivables. The information is there but—can you believe—it’s scattered in at least three different places. How can they operate this way?’’
"Lou, you’re missing the point.’’
"Am I? Do you know that with proper attention we can reduce the open receivables by at least four days?’’
"And that will save the division,’’ I say sarcastically.
"No,’’ he grins. "But it will help.’’
"Will it?’’
When Lou doesn’t answer I continue, "Do you really believe it will help? Look Lou, what have we learned? What did you yourself say when you asked for the job? Do you still remember?’’
Irritated he says, "I don’t know what you’re talking about. Don’t you want me to correct things which are obviously wrong?’’
How am I going to explain it to him? I try again.
"Lou, suppose that you do succeed in collecting four days out of the open receivables. By how much will throughput, inventory, and operating expense be improved?’’
"They’ll all be slightly improved,’’ he says. "But the major impact will be on cash. You shouldn’t sneeze at four days’ cash. Besides, improving the division requires many small steps. If everyone does his share, together we can lift it.’’
I drive silently. What Lou said makes sense, but somehow I know that he is wrong. Deadly wrong.
"Lou, help me here. I know that improving the division will require many small improvements, but . . .’’
"But what?’’ he says. "Alex, you are too impatient. You know what they say, Rome was not built in a day.’’
"We don’t have hundreds of years.’’
Lou is right, I am impatient. But shouldn’t I be? Did we save our plant by being patient? And then I see it. Yes, many small actions are needed, but that doesn’t mean that we can afford to be satisfied with actions that improve the situation. We must carefully choose which ones to concentrate on, otherwise. . . .
"Lou, let me ask you. How much time will it take you to change, for internal purposes only, the way that we evaluate inventory?’’
"The mechanical work is not a real problem, that won’t take more than a few days. But if you’re referring to the work it’ll take to explain the ramifications, to explain to managers how this affects their day-to-day decisions, that’s a different story. With concentrated effort, I’d say it’ll take weeks.’’
Now I’m on solid ground.
"What, do you think, is the impact of the way we currently evaluate inventory on the levels of finished stocks that the division currently holds.’’
"Significant,’’ he says.
"How significant,’’ I press. "Can you give me a number?’’
"I’m afraid not. Not even a meaningful evaluation.’’
"Let’s try to do it together,’’ I say. "Have you noticed the increase in finished goods that the division is holding?’’
"Yes, I have,’’ he answers. "But why are you surprised? It’s exactly what should be expected. Sales are down and the pressure to show profits is up, so they build finished goods inventory to generate fictitious inventory profits. I see what you mean. We can take the increase in finished goods as an indicator of the impact of the way we value inventory. Wow, it’s about seventy days!’’
"Lovely,’’ I say. "Compare it to your four days of receivables. On what should you work? Moreover,’’ I keep on hammering, "what is the impact on throughput?’’
"I don’t see any,’’ he answers. "I see very clearly the impact on cash, on inventory, and on operating expense, but not on throughput.’’
"Don’t you?’’ I say mercilessly. "What was the reason that they gave us for not introducing the new models? Can you recall?’’
"Yes,’’ he says slowly. "They are convinced that introducing the new models will force them to declare all the old ones they’re holding in stock as obsolete. That would cause a major blow to the bottom line.’’
