1 Introduction to the Theory of Constraints Ing.J.Skorkovský, CSc, Department of Business Management FACULTY OF ECONOMICS AND ADMINISTRATION Masaryk University Brno Czech Republic 2 Introduction nTheory of Constraints - TOC) was formulated approximately in 1980 in the USA. Some important roots of this theory were connected to the ideas incorporated in programs for planning and production control (Optimized Production Technology) 3 Introduction nAuthor: Eliyahu Moshe Goldratt Important experts in the field of TOC nCarol Ptak nEli Schragenheim 4 The Major Principles of DDMRP by Carol Ptak - YouTube Throughput Based Decision Making by Eli Schragenheim - YouTube Manufacturing at Warp Speed: Optimizing Supply Chain Financial Perform In our faculty library Make money !!! 5 The Goal by Eliyahu Goldratt nThe goal of a company? What is TOC ? nA business philosophy which seeks to strive towards the global objective, or goal, of a system through and understanding of the underlying cause and effect. nBased on holisitic approach 6 relating to the whole of something or to the total system instead of just to its parts What is TOC ? nThe method provides logical tools to construct, test and communicate strategic intent: nLogical Thinking Process->logical trees leading to the problem roots nTwo approaches to increase the flow of value in areas such as: nProjects->CCPM-> Critical Chain Project Management nProduction-> DBR->Drum-Buffer-Rope nHow to measure the goals: nConstraint Accounting (Throughput Accounting) nCA is a framework to maximize profit and drive optimal operations 7 What is the goal? 8 Metrics (will be inroduced later) Absolute Relative Survival Cash Flow Statement 9 Cash Flow Receivables-Payables 10 2224,96+(-1937,40)=4162,36 Cash Flow approach by MS Dynamics 365 Business Central I. 11 ERP MS Dynamics 2018 NAV covers fully Cash Flow functions as well. Cash Flow approach by MS Dynamics 365 Business Central II 12 13 Introduction -novels nTOC has became popular particularly thanks to the novels: nThe Goal - A Process of Ongoing Improvement nIt´s Not Luck nThe Race nThe Critical Chain nThe Haystack Syndrome nNecessary But Not Sufficient nLate night discussion nTOC was together with TQM (Total Quality Management ) and JIT (Just-In-Time) classified as one of the most important managerial methods of the last two decades of the twentieth century TOC Application Areas nCompany logistic nProject management (Critical chain=CCPM) nMarketing nSales nSCM=Supply Chain Management (Distribution) nFinance management and metrics nProduction control nMaterial nCapacities nWIP (Work In Progress) n 14 TOC wider use and application horizons nSupport of decision making nSupport of process improvements nRoot problems detection n 15 Causes-Problem-Effects 16 Vital information missing Demotivated staff Poor communication between management and staff Unclear roles and expectations Lot of staff changes Time pressures Haphazard supervisions and meetings Decision making nProblem identification (TOC) nObjectives: nMax Margin n Stability n Market Share n Lower Costs,… ) nAlternatives (different solutions) – Payoffs nActivity Based Costing nContribution Margin (CM) and CM Ratio nComparing alternatives (Max, Min, MaxMin,… ) nBest alternative is chosen nSolution is implemented (DO) 17 TOC and Business Process Reengineering approach 18 J Not traditional approach Positive expectations OPTIMIST „Half of the glass is still empty ! TOC APPROACH „We have glass which is twice as big ! The TOC result PESSIMST „We have only half of the glass!“ L Přehoz Přehoz Traditional approach Negative expectations BPR(Business Process Reengineering) approach „We have two times more than we really need “ The BPR result Přehoz ERP-Processes Information technology Management philosophy Feedback You can see this slide (Number 2) on PWP show BC Intro I ERP-TOC Approach 20 ERP (Objects)- Information technology =Object 90% fit to all requirements 7% ERP modification (no process modifiaction) TOC 3 % ERP modification ( with process modifiaction) Lower cost and faster implemenation Questions : cost of implementation, type of ERP, supplier of ERP 21 22 Some impacts of TOC implementation 23 LEAD Time explanation-purchase Quantity Time Date of Purchase order Placement Date of Delivery Lead time Ordered Quantity Lead time in Business Central 24 25 Lead Time (LT) explanation in purchase form (MS Dynamics 2018 NAV) LT Lead Time in Business Central 26 Lead Time 27 Some impacts of TOC implementation nSome companies using TOC applications: nBOEING – maintenance departments nMOTOROLA – research & development nGENERAL MOTORS -logistics nLOCKHEAD MARTIN (F 35) – Project Management nBAE SYSTEMS – R&D nR&D->Research and Development area n 28 TOC Which is harder to manage? Left or Right? B A 29 TOC nIt is based on system approach nA company (enterprise) is to be understood as a chain of dependent processes – this picture below is very, very simplified Marketing Orders Purchase Production Packaging Shipment 56744,1137956849,1 See next slide 30 Larger Process Input Output Input Process Output Input Process Output Input Process Output Process Theory – more complex than one way chain Input Process Output 31 RM FG RM RM RM RM RM RM RM RM RM FG Linear or “I” system Raw Material Finished Goods Process Theory – more complex than one way chain Bill of Material Types of the plants (home study) 32 33 TOC – system approach nOrganizations / Systems exist for a purpose nThat purpose is better achieved by cooperation of multiple, independent elements linked together nPurpose -> Better Bottom Line nEach Inter-linked event depends in some detail upon the other links nThe system owner determines purpose of the system n n 34 TOC (home study) nMost real systems could be seen in such a way, that there are only a few or better only one element (factor), which is the key point, where and only there all possible managerial methods have to be focused in order to control whole system n„Every system is based on basic simplicity”. nThis element in TOC is called Constraint of the system = bottleneck n nBottleneck: Any resource whose capacity is equal to or less than the demand placed upon it. n 35 bottleneck 36 Resource :www.dbrmfg.co.nz 37 TOC- bottleneck I nDifferent link capabilities, normal variation n and changing workload make it impossible to balance everything. nOne element of the system is more limited than another. n Yosemite-Overcrowding-Bottleneck7jul07 38 TOC- bottleneck II n When the whole system is dependent upon the cooperation of all elements, the weakest link determines the strength of the chain. nAn exactly balanced chain (system) is stronger than a non-homogeneous chain, but when close to the breaking point, all links must be managed n n Bottleneck is here !!!! TOC on K2 (Čhogori) 39 Výsledek obrázku pro bottleneck k2 Výsledek obrázku pro bottleneck k2 Snowfield on the Abruzzi Pillar 40 TOC nWhy constraint ? nConstraint prevents to reach the goal (make money now and in the future) n nThe TOC goal : „Make money now and in the future“ n nEvery system has at least one such a constraint. n The system without such a bottlenecks would reach the predefined business plans in infinite volumes. 41 TOC : nTraditional approach – world of where the aim of any endeavour is to optimize locally every segment of the chain, meaning balancing the capacity of every element and not the flow through the chain n Marketing Orders Purchase Production Packaging Shipment Maximization of the efforts 242 of the costs 42 TOC : nUse of : „common sense“ nThe consistent focus of the bottleneck- – global optimization Zobrazit obrázek v plné velikosti of the throughput Maximization of the efforts Marketing Orders Purchase Production Packaging Shipment 43 TOC 20146 44 TOC nWorld of costs: nmain metric – the weight of the chain (every decrease of the weight of any components will result in better efficiency (performance) nTotal improvement = sum of local improvements nWorld of throughput: nmain metric –the compactness of the chain nOnly improvement of bottleneck will improve performance of the whole chain nTotal improvement = improvement of the bottleneck 45 Cost Accounting Model versus Constraint Model (Home-study) The cost accounting model—the norm in most organizations—is a financial model that was never designed to run the business. The cost accounting model focuses on price per unit, while the constraint model focuses on price per unit of time spent at the constraint, a measure known as ‘product octane’. Both the cost and constraint accounting models are necessary, but many organizations use the cost accounting model for both purposes. As the constraint in any business operation limits the flow of throughput, maximizing the „product octane“ is the goal of constraint accounting. The throughput model yields a dramatically different view of the relative profitability of different products. It provides a new perspective regarding the appropriate product mix and target markets. Adopting a ‘constraints’ approach to profit maximization can easily lead to a 25% increase in operating profits, with significant additional cash flow benefits. Moreover, you’ll reduce inventories and work-in-progress, and make smarter and therefore less costly ales and marketing decisions. Resource : https://ensembleconsultinggroup.com/method/operations-toc-overview/management-accounting/ 46 Life show (first hypertext link) nhttps://www.youtube.com/watch?v=UYZ6NC1JHfI – animated figures nhttp://www.tocca.com.au/ n n n n n 42-15557322 47 TOC nFive steps process - CONTINUOUS IMPROVEMENT: n Step 0. Identify the Goal of the System/Organization Step 0.5 Establish a way to measure progress to Goal n nStep 1. Identify the system’s constraint. nStep 2. Exploit the system’s constraint. nStep 3. Subordinate everything else to the above decision. nStep 4. Elevate the system’s constraint. nStep 5. If a constraint is broken (that is, relieved or improved), go back to Step 1. But don’t allow inertia to become a constraint. n http://www.leadingagile.com/2014/01/theory-constraints-brooks-law/ Adding manpower to a late software project makes it later ! Brooks´law !!! 48 TOC n„Cost Accounting is enemy number one of productivity“. * nImpact on the behaviour of the people and they habits of finding and improvements of local elements having reason in optimising of these particles. nNew metrics were introduced – already presented n n* Eric Noreen, Debra Smith and James t. Mackey 49 Definition (TOC metrics) - summary nThroughput (T): The rate at which the system generates money through sales. nNote that the money is generated through sales and not production because if you produce something and don’t sell it, you have not really had throughput. (You’ve just put it into inventory). nInventory (I): All the money that the system has invested in purchasing things, which it intends to sell. nOperational Expense (OE): All the money the system spends in order to turn Inventory into Throughput. See classification of OE later in this show n 50 TOC metrics more in detail (T) nThroughput is the rate at which a system achieves its goal. n1st approach: monetary revenue we have got after sales n2nd approach: output, meaning part of inventory that may be sold or stored in a warehouse. 51 TOC metrics more in detail (OE) nOperating expenses includes e.g. : naccounting expenses nlicense fees nmaintenance and repairs, such as snow removal, trash removal, janitorial service, pest control, and lawn care nadvertising noffice expenses nsupplies nattorney fees and legal fees nutilities, such as telephone n Repetition of a topic that has already been reported on TOC nTOC as a managerial paradigm (holistic approach) nLiterature and resources nTOC and Business Process Reengineering (pessimistic and optimistic approach) nChain of processes nBottleneck and its definition and impacts nDBR (Drum-Buffer-Rope) – first approach nCost World and Throughput World n-the weight of the chain (every decrease of the weight of any components will result in better efficiency (performance) n- the compactness of the chain (only improvement of bottleneck will improve performance of the whole chain) nBasic TOC metrics (T,OE, Inventory) nFive focusing steps (Find, Exploit, Subordinate, Elevate , go back to 1) n n n 52 See holistic explanation Holistic approach 53 First formulated by Jan Smuts, holism has been traditionally defined as a philosophical theory that states, that the determining factors in nature are wholes, which are irreducible to the sum of their parts and that the evolution of the universe is the record of the activity and making of such wholes. More generally, it is the concept that wholes cannot be analyzed by its parts or reduced to discrete elements, without unexplainable residuals. 54 Measuring the goal (TOC metric) nNet profit (NP=T-OE) : ( T, I and OE was already explained in this course) -> T=Net Sales – TVC =S-TVC, where TVC=Total Variable Costs nCash nReturn on Investment (ROI=NP/I) n n nThroughput =T nInventory = Investment =I nOperating Expenses =OE n n 55 Metrics and their relationships-trends File:ThroughputStructure.jpg 56 TOC –required trends 57 T,I,OE,NP and ROI example (home study) nNP=T-OE = (S-TVC) – OE ; where TVC=Total Variable Costs and S=Unit Price nROI=(T-OE)/I=NP/I, where NP=Net Profit nwhere T=total throughput (pcs/unit of time) 10 13 7 9 11 A B C D E 1.Only one product !!! In our example TVC=0 2.Unit Price (Selling price) = 100 USD = S 3.Raw material /one product =35 USD =>OE1 4.NP/product=(T-OE1)= (S-TVC)-OE1 =100-35=65 5.176 hours/month (constraint of the company) 6.T=176 * 7 = 1232 parts/month (no more) 7.Monthly NP =1232 * 65 USD = 80 080 USD CCR=Capacity Constraint Resource= =weakest link of the chain= bottleneck 58 T,I,OE,NP and ROI example (home study) n1st suggestion is to optimize B from 13->14 parts per hour nT will not increase ->You cannot produce more than 7 !!!! nInvestment to optimize B=5000 USD with depreciation 10 % nOE2(month) =(5000 USD * 0,1)/12= 41,67 -> 42 USD (when rounded up) 10 13->14 7 9 11 A B C D E CCR=Capacity Constraint Resource=weakest link 1.Only one product 2.Unit Price (Selling price) = 100 USD 3.Raw material /one product =35 USD =OE 4.NP/product=S- (OE1+OE2) = 100 -(35+42)=23 5.176 hours/month (constraint of the company) 6.T=176 * 7 = 1232 parts/month 7.Monthly NP =1232 * 23 USD = 28 336 USD < 80 080 USD (see previous example) 59 T,I,OE,NP and ROI example (home study) nT = throughput will not increase nNP (Net Profit) will decrease based on increased OE (41,67 USD /month) nBased on NP decrease ROI is negative nBad suggestion !!!!!! n 10 13 7 9 11 A B C D E CCR=Capacity Constraint Resource= =weakest link 60 T,I,OE,NP and ROI example (home study) n2nd suggestion is to optimize C from 7->7,1 parts/hour npart of the 2nd suggestion is an extra load of E so it goes from 11->10 (no effect) nNecessary investment is 5000 USD (remains the same) nIncrease of the T=production/month = (7,1-7,0) * 176=17,6 parts nIncrease of the company NP= 17,6*23 = 404,8 USD/Month n n n 10 13 7->7,1 9 11->10 A B C D E NP/product=100-(35+42)=23 61 T,I,OE,NP and ROI example (home study) nNecessary investment is 5000 USD = I =Inventory= Investment nIncrease of the T= production/month = 0,1*176=17,6 parts nIncrease of the company/month NP= 17,6*23 USD= 404,8 USD nOE/month =(5000 * 0,1)/12= 41,67 -> 42 USD nOE will be increased by 42 USD/month nAnnual increase of the NP = 404,8*12=4848,8 USD nROI=NP/I = (28336*12+4848,8)/5000 = 69 % !!! nT does not measure local efficiencies, except at the constraint- see next slide n 10 13 7->7,1 9 11->10 A B C D E Throughput summary 1.T=176 hours * 7,1 = 1249,6 (previous T=176*7=1232) 2.Parts/month (not rounded) 3.Monthly NP =1249,6 * 23 USD = 28 740,8 USD 4.Originally : 1.T=176 * 7 = 1232 parts/month 2.Monthly NP =1232 * 23 USD = 28 336 USD 3. 3.28740,8-28336,0=404,8 4. n 62 NP/product=S- (OE1+OE2) = 100 -(35+42)=23 63 Implementation of TOC is complicated switchover process nit represents challenging adventure, where the invested efforts are often not predictable nit requires cooperation, coordination and use of well informed and trained teams on both sides. nyou will certainly overcame natural resistance against changes and persuade distressed and indolent people nno one is willing to change anything n laziness 64 Implementation of TOC is complicated switchover process ntry to find somebody who could accept suggested TOC changes !!! nyou must persuade these guys, that the suggested changes are in fact their idea and without their creativity TOC would be only toothless beast ! nbut how to achieve it ?? QuestionMark 65 Implementation of TOC is complicated switchover process n nSocratic teaching – proving the logic by use of dialog nBuy-in approach – initiator of the changes must have interpersonal and communication talents in order to persuade the targets and squeeze from the people their best ideas. 66 Socratic teaching Review of last 63 slides nCause->Effect relations approach nBottleneck specification=problem identification nCost world and Throughput world n5 TOC steps nTOC metrics (T,I,OE) – basics of throughput accounting 67 Throughput accounting (home study) nThroughput accounting (TA) is principle-based and simplified management approach that provides managers with decision-support information for enterprise profitability improvement. nTA is relatively new in management accounting. It is an approach that identifies factors that limit an organization from reaching its goal and then focuses on simple measures that drive behavior in key areas towards achieving organizational goals. nGoldratt proposed TA as an alternative to traditional cost accounting. nThroughput Accounting (TA) is not Cost Accounting (CA) because CA is cash focused and does not allocate all costs (variable costs and fixed expenses, including overheads) to products and services sold or provided by an enterprise n 68 Cost accounting I. nIn accounting, the term cost refers to the monetary value of expenditures for raw materials, equipment, supplies, services, labor, products, etc. It is an amount that is recorded as an expense in bookkeeping records. n 69 Cost accounting II. 70 Profit Centres & Departments responsible for costs and profit generation Products or product groups and services (Cost objects) Cost Center(s) Cost Object(s) Cost Allocation Cost Allocation III (home study) 71 nBusiness Central approach Profit Centres & Departments responsible for costs and profit generation Products or product groups and services 72 Implementation of TOC is very complicated switchover process n nWe have to find out the answers to these questions: n1. What to change? n2. To what to change to ? n3. How to make the change happen? 73 Implementation of TOC is complicated switchover process nWhat to change? nObjectives : Situation assessment, description of “current reality,” and identification of the core problem or conflict and assumptions that sustain it. Diagnosis and systemic root cause analysis. n nBut at any time, you will meet enemies – the ones who hate any changes n nYou have a lot of people wishing to do the same, a lot o people doing exactly the opposite and immense quantity of people which would like to do nothing ! nResistance type: Lack of agreement on the problem n 74 Implementation of TOC is complicated switchover process nTo what to change? nObjectives : Verbalization of vision/solution->process diagram, description of strategy to attain the desired state, and avoidance of undesirable side effects. Prescription, decision-making, and solution development. n nLayers of resistance: n Lack of agreement on a possible direction for a solution n Lack of agreement that the solution will truly address the problem nConcern that the solution will lead to new undesirable side effects (“Yes, but…”) nOr you will get even worse reaction („NO, because…“) n n Process diagram 75 76 Thinking Process Tools noffer the answers to three TOC questions about changes nhelp to clear away every layers of resistance nvisualisation of the thinking process nverbalization of the thinking process nuse of casual logic (cause ->effect) nuse of sufficiency logic - „IF - AND - THEN“ nuse of necessity logic - „IN ORDER TO - THEN - BECAUSE“ brain Thinking Tools (home study) nThinking Tools nSufficient cause is the thought pattern of cause-effect relation. When we assume that something, only because it exists, causes something else to live, we use enough cause thinking. nAnother point of view is using sufficient cause thinking when we assume that something is the inevitable result of the mere existence of something else" (Scheinkopf, c1999 p. 31). nIt is essential to care about hidden assumptions because they are the "source of disagreements and best-laid plans gone awry" (Scheinkopf, c1999 p. 34). nThe primary benefit of the Thinking Tools diagrams is in the relationships they are capable of showing. nThe thinking process related to finding plausible causes is related to the assumption that the existence of one element causes the presence of another. nAnother reasoning when using plausible cause is the assumption that one element is the inevitable consequence of another (Scheinkopf, c1999 p. 31). n n n n 77 Basics relationships 78 Cause A Effect B Auto battery is empty The engine do not start Assumption The engine do not start because battery is flat (empty) I drink a lot of Czech bier My belly looks like Zeppelin The bier is an energy drink My belly looks like Zeppelin The girls like slim athletes !!! I cannot find a girl !!!! Cause-effect simplified structure 79 I drink a lot of bier My belly looks like Zeppelin I cannot find a girl !!!! I am alone and frustrated I drink more bier !! 80 Thinking Process Tools I am eating fatback every day I would win a bodybuilding contest In order to survive and to be strong as Hercules I must eat fatback Necessity logic IN ORDER TO - THEN - BECAUSE big-muscles 81 Thinking Process Tools I have one good bulb in my castle hall The chandelier is connected to the electric network Switch is on I have in my room a lot of light AND Sufficiency logic IF - AND - THEN hall 33_10_11---Lights_web old_switch_gear 6860536_6e0ef57349 82 We have to solve the crucial question: what is a core problem (what should be changed) nA tool for solving such a task : Current Reality Tree ØWhy to change something and what is something (core problem=constraint, bottleneck) ØSummary of all Undesirable Effects (UDE) and their layout based on casual logic - sufficiency logic ØCore Problem – common cause of all UDE Ø Ø n UDE examples nFrom the book "It’s Not Luck“, some examples of the UDEs are: nProduction and distribution do not improve fast/significantly enough nEngineering is unable to deliver new products fast and reliably enough. nCompanies do not come up with good innovative ideas in marketing. nIn more and more cases, the price with the market price is willing to pay does not leave enough margin. nThere is unprecedented pressure to take actions that will increase sales nCompetition is fiercer than ever. nIn advanced material industries, there is a need to launch new products at an unprecedented rate. nSalespeople are overloaded. nThere is increasing pressure to reduce prices. n 83 Growing a business under fierce competition - Business Guide by Dr Prem Increasing selling bandwidth and selling time of sales teams 84 UDE 1 UDE 3 UDE 2 UDE 9 UDE 4 UDE 7 Cause 1 UDE 6 UDE 8 Root problem Cause 2 UDE 5 Current Reality Tree We have to solve the crucial question: what is a core problem (what should be changed) CRT (home study) nA CRT is a cause-effect logic diagram constructed with "sufficient cause" reasoning that is used to establish a stream of logical relationships that link the core conflict with the UDEs (Ronen, c2005 p. 29). n nThe CRT is used to pinpoint the core driver – a common cause for many effects. The most common use is to identify a core problem, which can be thought of as the invisible constraint responsible for many of the system's current problems. n nConstructing the tree is a process that leads to the recognition of the behavioral patterns of the conditions existing in the reality of the system. n nCRT is a tool that allows to see order even in the midst of chaos (Scheinkopf) n nBefore creating the diagrams, any and all possible information is collected; what issues the inspected company deals with, what its pains are, and what the corporate goals are. These topics can be described with the as-is model, and the information is therefore transcribed into the CRT. n 85 Create A Study Studio & Make Learning At Home Easier! | Oxford Learning CRT (home study) n nCRT diagram does not represent any reality, but as is the case with the other diagrams, shows relationships based on the cause-consequence paradigm, where undesirable effects in unison create the final problem being addressed by the diagram. n nBacktracking these consequences to their cause, the single core problem, or the bottleneck, is determined. The CRT construction process contains the following steps: n1. Determine the scope of the analysis n2. List between 5 to 10 pertinent entities n3. Diagram the effect-cause-effect relationships that exist among the entities. n 4. Review and revise for clarity and completeness n 5. Apply the "so what" test. 6. Identify the core cause(s) (Scheinkopf, c1999 p. 144). n 6. Identify the core cause(s) (Scheinkopf, c1999 p. 144). n 86 Create A Study Studio & Make Learning At Home Easier! | Oxford Learning See it again on the next slide How to create CRT (home study) nThe CRT construction process contains the following steps: n (it was already mentioned on the previous slide) n n1. Determine the scope of the analysis n2. List between 5 to 10 pertinent entities n3. Diagram the effect-cause-effect relationships that exist among the entities. n4. Review and revise for clarity and completeness n5. Apply the "so what" test. n6. Identify the core cause(s) (Scheinkopf, c1999 p. 144). 87 Create A Study Studio & Make Learning At Home Easier! | Oxford Learning 88 I touch a hot cook stove I will burn my hand I touch a hot cook stove I will not burn my hand I will use “pot holder“ Causality: IF a lot of snow AND snowboarding in restricted area THEN avalanche AND We have to solve the crucial question: what is a core problem (what should be discovered and changed) https://www.youtube.com/watch?v=aDEaAOcDKnA 89 We have to solve the crucial question: what is a core problem (what should be changed) IN ORDER to avoid to be singed I may not touch a hot cook stove BECAUSE IF I will touch the hot cook I will be singed (wounded) Necessity logic: IN ORDER to avoid something I HAVE TO do this 90 I cannot manage my time I am surfing on internet to much I am very busy (no time) I visit often fast food No sporting Oversupply of calories I am obese (overweight) No time for rendezvous No girl I am alone I am very shy because of my figure I am very shy to negotiate dating No rendezvous I am killing anxiety having reason in solitude by eating and drinking liquors Current Reality Three 91 Current reality three (home study) nList of UDE´s : nUDE1 : lack of financial consultants (FC) nUDE2 : late hand-over of required services during implementation and support nUDE3 : a modern design of ERP is not easily understood by rigid customer´s accountants nUDE4 : the customer´s accountants tend to use old fashioned methods and processes which are difficult to manage by using a modern ERP nUDE5 : rigid remuneration does not allow to pay more FC than the others nUDE6 : high level of fluctuation and job-hopping nUDE7 : overburdened FC as a consequence of bad multitasking (will be explained later in Critical Chain PWP) nUDE8 : FC are fed up by permanent repetitive explanation to the customer´s accountants who do no want to understand nUDE9 : bad multitasking nUDE10 : FC are unhappy because of a salary, which is much more lower then their expectations nUDE11 : The management sticks to Cost world and tends to decrease costs by minimising payroll and having all resources as a CCR (Critical Constraint Resources) nUDE12 : Customer is unhappy Create A Study Studio & Make Learning At Home Easier! | Oxford Learning 92 Current reality three (home study) n 11 5 10 6 1 3 9 7 4 8 2 12 ROOT PROBLEM Customer is unhappy Understanding and Offering Homestudy and Hybrid Programs 93 C:\Users\fajlo\Dropbox\Bc\Diagrams\English Diagrams\CRT - Page 1.png CRT – Bad structure of the code Resouce: BW, ing,Martin Lofaj, 2014 94 nEvaporating Cloud Tree Øthe change without any compromise - basic and starting impulse for the change Øuse of „necessity logic“ – common goal, necessary condition to reach this goals, what have to be done and where is a conflict Ø„how to get out from the scratch“ of the problem, disclosure (findings)and verbal definition of hidden assumptions ØWin-Win solution of the whole conflict = injection !!! n We have to solve another crucial question: the direction of solving a core problem What is the main reason (injection) supporting the change ! EC –definition (home study) nThe Evaporating Cloud (EC) is “by far the most often used of the thinking processes. This may be due to the fact that it is the easiest of the tools to learn. nThe cloud only has five entities, and it takes just a few minutes from start to finish. nThe tool is used for conflict resolution, and one thing we humans are not short on is conflict" (Scheinkopf, c1999 p. 171). The EC is responsible for a majority of the identified UDEs (Ronen, c2005 p. 27). nThe second diagram, the EC, shows different approaches to solving a problem. Each approach eliminates the other, while both attempt to reach the same goal. nThe first diagram, CRT, shows the current state, while the EC requires commitment to the path that management chooses and based on which consequences justifies its success. 95 EC creation (home study) nThe process of EC creation is: n n 1. Articulate the problem and diagram the cloud. n n2. For each arrow, uncover assumptions and identify potential n solutions, using the necessary condition thinking process. n n3. Choose an injection to implement (Scheinkopf, c1999 p. 173). 96 97 Necessary condition C to get A Goal A (negation of the root problem specified on CRT Necessary condition B to get A Activity D Activity D´ Conflict Evaporating Cloud Tree ( a conflict tree, a conflict resolution diagram) We have to solve another crucial question: the direction of solving a core problem Requirement Requirement Prerequisite Prerequisite Objective 98 How to read this Evaporation tree In order to have objective A, we must have requirement B.. In order to have requirement B, we must have prerequisite D... In order to have objective A, we must have requirement C... In order to have requirement C, we must have prerequisite D'... But prerequisites D and D' are in conflict... Like Fire and Water or Night and Day 99 Evaporation cloud tree- example 1 Performance Management 100 Evaporation cloud tree- example 2 Implementation of TOC 101 Evaporation cloud tree- example 3 Sales and prices 102 Transition Evaporation Cloud Tree Future Reality Tree (FRT) Common objective Evaporation Cloud Tree Conflict idea idea FRT The opposite of root problem = Common objective 103 Future Reality Tree (FRT) nThe FRT is very similar to the CRT in structure, but with new proposed actions, policies, and behaviour injected into it to create a new vision of the future reality of the system. nThe power of the logical "if-then" construction is that if any one of the lower-level causes are removed or mitigated, everything that is above it is subject to change. nIf any one of the three „IFs“ are removed or modified, the „THEN“ may be removed from consideration as a problem n I have fuel I have ignition I have oxygen I have a fire I have fuel I have ignition I do not have oxygen in contact with fuel I do not have a fire CRT FRT INJECTION FRT (home study) nThe Future Reality Tree (FRT) is a tool for logically visualizing the future through systematic transformation of the CRT. nIt presents the results from the planned implementation of healing injections that will eliminate the core conflict (Ronen, c2005 p. 33). nThe third diagram shows the future state and how it can be achieved. Based on the chosen strategy in EC, "healing injections" are used to enable processes causing the shift towards the desired state, achieved at the top of the FRT. nFRTdiagram also heavily relies on the logical relationships of individual elements as well as their causality. The approach is purely theoretical, on higher levels of abstraction and assumes an ideal context. As a model, it however perfectly translates the situation, needs, and progress to the stakeholders. nEvery single decision we make, every single action we take, will change something in the future. The FRT is a tool for visualizing and predicting the future. n 104 FRT (home study) n nThe FRT contains four parts: n n1. Injections are always entry points to the tree. They are entities that do not exist in the system's current reality and are distinguished from other entities by their squared corners. 1. n2. Entities that do currently exist in the system´s reality. In FRT, this type of entity will usually be entry points and is typically not found in the body of the tree. 1. n3. Entities that do not yet exist in the system. When entities that currently exist (2.) are combined with injections (1.), the (3.) entities will exist in the future. 1. n4. Reinforcing loops are often placed in future reality trees, as a means to create patterns of sustained and continuous improvement (Scheinkopf, c1999 p. 110). 105 How to create FRT (home study) nThe steps to making a FRT are: n n 1. Define the basis for the tree. n a. Identify an injection (idea). n b. List the objectives (pro's) of the injection. nc. List potential undesirable consequences (con's) of the injection. n2. Describe the effect-cause-effect relationships. n a. Using sufficient cause thinking, connect the injection to the objectives. nb. Seek and block potential undesirable consequences of the injection. n3. Enhance the solution. na. Predict additional effects. nb. Add reinforcing loops 106 Tips to Creating an Effective Study Space 107 Future Reality Tree (FRT) nThe objective of the FRT is to communicate a vision of how to change the undesirable effects found in the CRT to desirable effects. n n n DE DE DE DE Injection Injection DE DE DE Injection DE- Desirable effect 108 Future Reality Tree (FRT) NEW ERP IMPLEMENTATION Reliable system Data OK ATP,CTP Finite Capacity Planning Improved logistics Cost decrease Higher efficiency of resources Delivery due date performance improved Purchase planning Stock related costs decreased Better liquidity More flexible reaction to requirements Competitive price Sales increase Market share increase Stock value decreased Business-Production OK 109 nNegative Branch Reservations (NBR): Øuse of sufficiency logic – by taking into consideration objections of other involved persons Øthese objections were related to possible undesirable impacts of the injection (solution) implementation ØNBR is often a part of the FRT (Future Reality Tree) ØEvaporation Cloud Tree, FRT and NBR enable to answer the second question : To What To change ? Øor Where we are going ? n YES, this could be managed BUT…… 110 Výsledek obrázku pro where we are going Thinking like we always have is what got us where we are It is not going to get us where we are going ! (A.Einstein) 111 We will implement new remuneration rules in order to pay better FC Other consultants will not understand the logic and the cause of these new rules (UDE) These rules might be mistakenly interpreted The result could be worse that the current situation FC will be partly satisfied others will be angry FC fluctuation will stop (DE) Negative Branch Reservations example YES, this could be managed BUT…… FC= financial consultants UDE=undesirable effect DE=desirable effect Sufficiency logic 112 We cannot implement it, because….. n(Prerequisite Tree): Øuse of necessity logic – identification of obstacles Øuse of the human ability to invent any reason n WHY IT IS NOT FEASIBLE Øsetup of the necessary intermediate objectives Øsetup of the schedule for change process 113 We cannot implement it, because….. n(Prerequisite Tree): nThe pre-requisite tree ought to be considered the most important tree in the Thinking Process suite. nIt is the tree that allows us to overcome the obstacles that stop us from implementing our plan. nIt is also the tree that in fact becomes the implementation plan (it is very, very close to project management practice !!!!) nAnd it is the tree to which timelines, responsibilities, and accountabilities can be assigned to. n nThe pre-requisite tree occupies the position of “plan” amongst the Thinking Process tools. 114 Prerequisite tree - construction So our first step will look like this Objectives Obstacles Actions Better reports Not SW tool Buy it Improve liquidity High Safety Stock Optimization of ROP Smart organization Not Workflow Tool Buy it or modify ERP ROP=Reorder Point – see logistics theory HOME study ONLY !!!! 115 Prerequisite tree - example nTea Mission (we want to have a nice cup of tea in the wilderness) nObs-1 : We do not have material to burn Obs-2 : Collection of such material is not allowed in the wilderness. Obs-3 : There could be a strong wind Obs-4 : We do not have matches Obs-5 : We do not have cups Obs-6 : We don’t have a container to boil the water nIO-1 : We have some pieces of wood in the trunk of the car. IO-3 : We have a sheltered place to light the fire IO-4.1 : We have a packing list for the tea activity IO-4.2 : The tea kit is loaded into the car IO= intermediate (partial) objective Obs= obstacle HOME study ONLY !!!! 116 Prerequisite tree - example HOME study ONLY !!!! 117 We cannot implement it, because….. n (Transition Tree): Ødetailed schedule of change implementation process Øwhat actions have to be taken in order to reach intermediate objectives using sufficiency logic (IF-THEN-ELSE) Ø n n n HOME study ONLY !!!! 118 We cannot implement it, because…..HOME study ONLY !!!! n (Transition Tree) http://www.thedecalogue.com/Tools/trt/TREE.html: n n n n 119 We cannot implement it, because….. I do not know in details costs assignment by departments Action Need Reason HOME study ONLY !!!! 120 NBR- OBJ UDE UDE UDE UDE UDE UDE Příčina UDE UDE CP Příčina UDE DE DE DE DE Injekce Injekce DE DE DE Injection Injekce Opposite UDE (DE) UDE (DE) Injekce Top Objective=injection IO 3 IO 4 IO 2 IO 7 OB 3 OB 1 OB 5 OB 2 IO 6 IO 5 OB 4 NEED REASON IO 2 IO 1 NEED REASON ACTION ACTION Starter CRT Evaporating cloud tree FRT Prerequisite tree TT Thinking Process Tools Relationships Injection 121 Additional metrics of TOC (appendix 1) nInventory dollar days (IDD) n nA measure of the effectiveness of a supply chain – i.e., did it do things that it shouldn’t have done and as a result is the supply chain holding inventory of products the customer doesn’t want? IDD accounts for two things: n n1. the time from when a unit is placed in stock until it is actually needed by a customer n n2. the monetary value of the inventory being held. IDD is calculated by multiplying the monetary value of each inventory unit on hand by the number of days since that inventory entered the responsibility of that link. The system should strive for the minimum IDDs necessary to reliability maintain zero throughput dollar days. n nNOTE: The resulting unit of measure is "dollar-days". It is neither monetary nor time based. Attempts to compare dollar-days to other monetary measures are invalid. IDDs can be compared only to other IDD levels. n q n n AOPR - (home study) 122 Additional metrics of TOC (appendix 2) nThroughput dollar days (TDD) n nA measure of the reliability of a supply chain. TDD considers two things: n n1.the monetary value of the things a link is committed to deliver but does not n n2. the number of days by which the link misses its commitment to deliver. TDD is the summation of the commitments not delivered on time during the chosen time period. The TDD value of individual missed commitments is calculated by multiplying the dollar value of the end product times the number of days the commitment is/was overdue. The system should strive for zero throughput dollar-days. 1. nNOTE: The unit of measure "dollar-days" is neither monetary nor time based. Attempts to compare dollar-days to other monetary measures are invalid. TDD levels can be compared only to other TDD levels. AOPR-(home study) 123 Literature nGoldratt, E., M.: nThe Goal nThe Race nThe Critical Chain nNecessary But Not Sufficient nThe Haystack Syndrome nIt is Not Luck 124 Internet nwww.goldratt.cz nwww.goldratt.com nwww.toc-goldratt.com nwww.focusedperformance.com nwww.tocc.com nwww.tocca.com.au nhttp://www.dbrmfg.co.nz/ - A guide to implement the Theory of constraints nwww.ciras.iastate.ecu/toc/ nhttp://www.ciras.iastate.edu/library/toc/measurements.asp n n……...