Profitability With No Boundaries

Protability with No Boundaries
Also available from ASQ Quality Press: The Logical Thinking Process: A Systems Approach to Complex Problem Solving H. William Dettmer The Executive Guide to Understanding and Implementing Lean Six Sigma: The Financial Impact Robert M. Meisel, Steven J. Babb, Steven F. Marsh, and James P. Schlichting The Certied Six Sigma Black Belt Handbook, Second Edition T. M. Kubiak and Donald W. Benbow Six Sigma for the New Millennium: A CSSBB Guidebook, Second Edition Kim H. Pries The Certied Six Sigma Green Belt Handbook Roderick A. Munro, Matthew J. Maio, Mohamed B. Nawaz, Govindarajan Ramu, and Daniel J. Zrymiak 5S for Service Organizations and Ofces: A Lean Look at Improvements Debashis Sarkar Lean Kaizen: A Simplied Approach to Process Improvements George Alukal and Anthony Manos Lean for Service Organizations and Ofces: A Holistic Approach for Achieving Operational Excellence and Improvements Debashis Sarkar Lean ISO 9001: Adding Spark to your ISO 9001 QMS and Sustainability to Your Lean Efforts Mike Micklewright Root Cause Analysis: Simplied Tools and Techniques, Second Edition Bjrn Andersen and Tom Fagerhaug The Certied Manager of Quality/Organizational Excellence Handbook, Third Edition Russell T. Westcott, editor Enabling Excellence: The Seven Elements Essential to Achieving Competitive Advantage Timothy A. Pine To request a complimentary catalog of ASQ Quality Press publications, call 800-248-1946, or visit our Web site at http://www.asq.org/quality-press.

Optimizing TOC, Lean, Six Sigma Results
Focus Reduce Waste Contain Variability
Reza (Russ) M. Pirasteh Robert E. Fox
ASQ Quality Press Milwaukee, Wisconsin
American Society for Quality, Quality Press, Milwaukee 53203 2011 American Society for Quality All rights reserved. Published 2010 Printed in the United States of America 14 13 12 11 10 5 4 3 2 1
Library of Congress Cataloging-in-Publication Data Pirasteh, Reza M., 1956 Protability with no boundaries : optimizing toc and lean-six sigma / Reza M. Pirasteh. p. cm. Includes bibliographical references and index. ISBN 978-0-87389-795-2 (alk. paper) 1. Theory of constraints (Management) 2. Six sigma (Quality control standard) 3. Industrial productivity. I. Title. HD69.T46.P57 2010 658.4 013dc22 2010021466 ISBN-13: 9780-87389-795-2
No part of this book may be reproduced in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Publisher: William A. Tony Acquisitions Editor: Matt Meinholz Project Editor: Paul OMara Production Administrator: Randall Benson ASQ Mission: The American Society for Quality advances individual, organizational, and community excellence worldwide through learning, quality improvement, and knowledge exchange. Attention Bookstores, Wholesalers, Schools, and Corporations: ASQ Quality Press books, videotapes, audiotapes, and software are available at quantity discounts with bulk purchases for business, educational, or instructional use. For information, please contact ASQ Quality Press at 8002481946, or write to ASQ Quality Press, P.O. Box 3005, Milwaukee, WI 53201-3005. To place orders or to request a free copy of the ASQ Quality Press Publications Catalog, including ASQ membership information, call 800-248-1946. Visit our Web site at www.asq.org or http://qualitypress.asq.org. Printed on acid-free paper
Contents
Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Part I: Leadership Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Chapter 1: Productivity, Growth, and Prosperity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . HENRY FORD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ALFRED SLOAN. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TAIICHI OHNO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TLSA FOURTH WAVE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Chapter 2: Productivity ImprovementA Checkered History . . . . . . . . . . . . . . . . . . . Chapter 3: What Is an Improvement? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . HOW TO MEASURE AN IMPROVEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . WHY IMPROVEMENTS EFFORTS OFTEN FAIL . . . . . . . . . . . . . . . . . . . . . . . . . . . Chapter 4: Current CPI Favorites . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . THEORY OF CONSTRAINTS (TOC) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Five Focusing Steps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Thinking Processes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Critical Chain Project Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . LEAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SIX SIGMA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Six SigmaA Metric . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Six SigmaA Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Step 1Dene. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Step 2Measure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Step 3Analyze . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Step 4Improve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Step 5Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Design For Six Sigma (DFSS). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Six SigmaA Management System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Summary/Evaluation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Chapter 5: The TLS Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . WHAT IS iTLS? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . How Does iTLS Work? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
xv 1 3 3 5 12 17 25 31 31 35 39 39 39 41 42 42 45 45 46 46 47 47 48 48 49 49 50 53 53 53
vi
WHAT IS UNIQUE ABOUT ITLS? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . HOW SHOULD ITLS BE APPLIED? WHAT IS THE SEQUENCE OF EVENTS? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Chapter 6: Results: Has a More Global Focus Worked? . . . . . . . . . . . . . . . . . . . . . . . . . INITIAL CONDITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . WHICH METHODOLOGY WAS MOST EFFECTIVE?. . . . . . . . . . . . . . . . . . . . . Chapter 7: Throughput Operating Strategies (TOS) . . . . . . . . . . . . . . . . . . . . . . . . . . . . A NETWORKS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . V NETWORKS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . T NETWORKS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I NETWORKS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Chapter 8: Management Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . FOCUSING IMPROVEMENT EFFORTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . MOTIVATING THE DESIRED BEHAVIORS AND BUILDING TRUST. . . . . . . . . . THE MISSING LINK. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Chapter 9: Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Part II: Practitioners Guide. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Chapter 1: Productivity Growth and Prosperity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . FORD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SLOAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Product Pricing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investment Decisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Make vs. Buy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . OHNO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A FOURTH WAVEiTLS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Chapter 2: The Productivity Improvement Dilemma . . . . . . . . . . . . . . . . . . . . . . . . . . . IMPROVEMENT CHALLENGES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Chapter 3: CPI Favorites: TOC, Lean, Six Sigma . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . THEORY OF CONSTRAINTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . LEAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Principle 1: Specify the Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Principle 2: Dene the Value Stream . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Principle 3: Make Value Flow without Any Interruptions . . . . . . . . . . . . . . . . . . . . . Principle 4: Make Customer Pull from Supplier . . . . . . . . . . . . . . . . . . . . . . . . . . . . Kanban . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Principle 5: Perfection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Principle 6: Agility. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SIX SIGMA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Six SigmaA Metric . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Six SigmaA Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Step 1Dene. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Step 2Measure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
55 56 61 61 62 67 67 69 70 71 72 75 76 77 78 83 87 89 89 91 91 92 94 96 106 111 118 123 123 130 130 132 134 143 144 147 148 150 151 157 158 159
Contents
vii
Step 3Analyze . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Step 4Improve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Step 5Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . DESIGN FOR SIX SIGMA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Phase 1Identify. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Phase 2Design . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Phase 3Optimize . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Phase 4Validate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . WHERE WE WENT WRONG. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Case I: Direct Labor Reductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Case II: Increase Throughput. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Case III: Labor and Throughput Improvements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Chapter 4: What Is an Improvement? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . HISTORY OF IMPROVEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . HOW TO MEASURE AN IMPROVEMENT? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . WHY DO IMPROVEMENT EFFORTS OFTEN FAIL?. . . . . . . . . . . . . . . . . . . . . . . . Chapter 5: The iTLS Model and How It Works . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . WHAT IS THIS iTLS? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Step 1Mobilize and Focus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Step 2Decide How to Exploit the Constraint . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Step 3Eliminate Sources of Waste . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Step 4Control Process Variability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Step 5Control Supporting Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Step 6Remove the Constraint and Stabilize. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Step 7Reevaluate the System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Chapter 6: iTLS Study and Results Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . HAS A MORE GLOBAL FOCUS WORKED? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Initial Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Which Method Is More Effective?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Chapter 7: River System Optimization with TOS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A NETWORKS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . V NETWORKS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . T NETWORKS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I NETWORK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . BETTER UNDERSTAND YOUR PROCESSES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Chapter 8: MOST TLS Project Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . LEADERSHIP RESPONSIBILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mobilize . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Organize . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Speed-up . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tie Loose Ends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Real-World Application . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . User Feedback . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
159 160 160 161 162 162 163 165 166 166 169 169 170 185 185 187 191 195 195 203 208 211 221 227 230 236 257 257 258 259 262 267 268 273 279 281 284 285 285 286 287 288 289 289 291
viii
Chapter 9: Real-World Application of iTLS Approach . . . . . . . . . . . . . . . . . . . . . . . . . . 293 STUDYINVENTORY MANAGEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 293 Abstract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 293 iTLS-O Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 294 Examples of Real-Life Constraints . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 296 CASE STUDY ELECTRONIC MANUFACTURING COMPANY . . . . . . . . . . . . . . . 296 Initial Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 296 iTLS in Action and Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 297 Step 1Mobilize and Focus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 297 Steps 2 and 3Decide How to Exploit the Constraint and Eliminate Sources of Waste in the Constraint . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 302 Step 4Control Process Variability and Error in the Constraint . . . . . . . . . . . . . . . 303 Step 5Control Supporting Activities to the Constraint. . . . . . . . . . . . . . . . . . . . . . 303 Step 6Remove the Constraint and Stabilize. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 303 Step 7Reevaluate System Performance and Go after the Next Constraint . . . . . . 305 Going Forward . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 305 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 306 CASE STUDYVALVE ASSEMBLY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 306 Initial Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 306 Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 306 Step 1Mobilize and Focus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 307 Step 2Decide How to Exploit the Constraint . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 307 Step 3Eliminate Sources of Waste . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 308 Step 4Control Process Variability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 308 Step 5Control Supporting Activities to the Constraint. . . . . . . . . . . . . . . . . . . . . . 313 Step 6Remove the Constraint and Stabilize the Process . . . . . . . . . . . . . . . . . . . . 313 Step 7Reevaluate the System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 314 CASE STUDYCELSO CALIA OF BRAZIL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 314 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 314 Our Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 315 The Votorantim Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 318 Initial Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 318 Step by Step . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 319 Step 1Mobilize and Focus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 319 Step 2Identify and Exploit the Constraint (Drum). . . . . . . . . . . . . . . . . . . . . . . . . 320 Step 3Eliminate Sources of Waste . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 320 Step 4Control Process Variability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 322 Step 5Control Supporting Activities to the Drum . . . . . . . . . . . . . . . . . . . . . . . . . 322 Step 6Control Supporting Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 322 Step 7Reevaluate the System and Go After the Next Drum . . . . . . . . . . . . . . . . . 323 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 324 Chapter 10: Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 327 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 329 Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 333 Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 347 About the Authors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 353
Figures and Tables
PART 1 Figure 3.1 Figure 5.1 Figure 5.2 Figure 5.3 Figure 6.1 Figure 6.2 Figure 6.3 Table 6.1 Figure 6.4 Figure 7.1 Figure 7.2 Figure 7.3 Figure 7.4 PART 2 Table 1.1 Table 1.2 Table 1.3 Table 1.4 Table 1.5 Table 1.6 Table 1.7 Figure 1.1 Product costs when most costs are variable . . . . . . . . . . . . . . . . . . . . . . . . . . Product costs when most costs are not variable. . . . . . . . . . . . . . . . . . . . . . . Investment decisions when most costs are variable . . . . . . . . . . . . . . . . . . . . Investment decisions when most costs are not variable. . . . . . . . . . . . . . . . . Make vs. buy decisions when most costs are variable . . . . . . . . . . . . . . . . . . Make vs. buy decisions when most costs are not variable. . . . . . . . . . . . . . . Standard costs of clutches . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 92 93 93 94 94 95 OE, I relationship. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iTLS model. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iTLS seven-step process.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iTLS seven-step ow, tools, and techniques. . . . . . . . . . . . . . . . . . . . . . Lean and Six Sigma benets/project.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . LeanSix Sigma and TLS benets/project. . . . . . . . . . . . . . . . . . . . . . . . . . . Lean, Six Sigma, and iTLS nancial return/project. . . . . . . . . . . . . . . . Lean, Six Sigma, and iTLS comparison . . . . . . . . . . . . . . . . . . . . . . . . . Financial contribution by methodology. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ariver ow operation networklaptop computer manufacturing. . . . . . . . Vriver ow operation networka pick-pack-ship warehouse. . . . . . . . . . . Triver ow operation networkautomobile assembly.. . . . . . . . . . . . . . . . Inetwork riverairline meal tray assembly operations. . . . . . . . . . . . . . . . 33 54 56 58 63 63 64 65 66 68 69 71 72
Kanban system. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
ix
Figure 1.2 Table 2.1 Table 2.2 Table 2.3 Table 2.4 Figure 2.1 Table 3.1 Table 3.2 Table 3.3 Figure 3.1 Figure 3.2 Table 3.4 Figure 3.3 Figure 3.4 Figure 3.5 Figure 3.6 Figure 3.7 Figure 3.8 Figure 3.9 Figure 3.10 Table 3.5 Figure 3.11 Figure 3.12 Figure 3.13 Figure 3.14 Figure 3.15 Figure 3.16 Figure 3.17 Figure 3.18 Figure 3.19 Figure 3.20 Table 3.6 Table 3.7
Drum buffer rope system. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104 Job lossesmajor metropolitan areas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112 Comparison of improvement programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113 Distribution of time a company has been using Six Sigma. . . . . . . . . . . . . . 114 Support of Six Sigma implementation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116 Four major wavesthe evolution of continuous improvement. . . . . . . . . . . 120 Types of constraints. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124 Constraint management steps. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127 Types of value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130 Hidden factory.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132 Value characterization decision owchart.. . . . . . . . . . . . . . . . . . . . . . . . . . . 132 Seven sins of production. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133 Order fulllment value stream. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135 Takt time and balancing workload. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136 Takt timeunbalanced work. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136 Process ow matrix.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137 Workow transportation logistics. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138 Example of a traditional layout.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139 Example of a work cell layout. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140 5S CANDO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140 Components of 5S.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141 Poka-yoke, error-proong.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143 Kanban system mechanics. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145 Inventory hides problems. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146 Six Sigma evolution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151 Normal distribution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152 Process control. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152 1.5 sigma shift assumption. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153 Area under normal curve assuming 1.5 sigma shift. . . . . . . . . . . . . . . . . . . . 154 Relationship of sigma levels and PPM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154 FPY in a two-step process.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155 Relationship between Cp, PPM, and sigma level. . . . . . . . . . . . . . . . . . . . . . 156 Sigma capability and DPM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157
Figures and Tables
xi
Table 3.8 Table 3.9 Table 3.10 Table 3.11 Table 3.12 Table 3.13 Table 3.14 Figure 3.21 Figure 4.1 Figure 5.1 Figure 5.2 Figure 5.3 Figure 5.4 Figure 5.5 Figure 5.6 Figure 5.7 Figure 5.8 Figure 5.9 Figure 5.10 Figure 5.11 Figure 5.12 Table 5.1 Figure 5.13 Table 5.2 Figure 5.14 Table 5.3 Table 5.4 Table 5.5 Figure 5.15 Figure 5.16 Figure 5.17 Figure 5.18 Figure 5.19
DMAIC process. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158 Process overall yield vs. Sigma.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164 DMADV process. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166 Benets of reducing direct labor costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169 Benets of increasing throughput. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170 Benets of increasing throughput and labor savings. . . . . . . . . . . . . . . . . . . 171 GM story. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175 Sustainable operational ecosystem. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179 T, OE, I relationship. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 190 iTLS model. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 198 iTLS model. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 199 Integration of TOC, Lean, Six Sigma iTLS. . . . . . . . . . . . . . . . . . . . . . . . . . 199 iTLS model. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200 iTLS seven-step process. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 203 iTLS seven-step ow and tools. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 204 Application of TOC tools. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 205 Problem statement development checklist. . . . . . . . . . . . . . . . . . . . . . . . . . . 207 Step 1, mobilize and focus. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 209 Exploit the constraint. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 211 Application of Lean tools. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 212 Ishikawa cause and effect diagram. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 213 CNX denition for factor screening. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 213 Five whys. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 215 FMEA objectives. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 215 PFMEA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 217 SEV scoring guide. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 218 OCC scoring guide. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 219 DET scoring guide. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 220 Eliminate sources of waste. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 221 Application of Six Sigma tools. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 222 Comparisons of two processes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 223 Measurement errors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 226 Control process variability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 226
xii
Figure 5.20 Figure 5.21 Figure 5.22 Figure 5.23 Figure 5.24 Figure 5.25 Figure 5.26 Figure 5.27 Figure 5.28 Figure 5.29 Figure 5.30 Figure 5.31 Figure 5.32 Figure 5.33 Figure 5.34 Table 6.1 Figure 6.1 Figure 6.2 Figure 6.3 Table 6.2 Figure 6.4 Figure 7.1 Figure 7.2 Figure 7.3 Figure 7.4 Figure 7.5 Figure 8.1 Figure 8.2 Figure 9.1 Figure 9.2 Figure 9.3 Figure 9.4 Figure 9.5
iTLS rapid problem-solving worksheet. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 228 Control supporting activities.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 229 What and how for iTLS monitoring model.. . . . . . . . . . . . . . . . . . . . . . . . . . 231 Generic iTLS takt board layout.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 233 Generic iTLS performance tally sheet. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 234 Remove the constraint and stabilize. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 235 Reevaluate the system. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 237 Base-line assessment.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 238 iTLS Implementation road map. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 239 High-level model for undesirable outcome of strategic planning.. . . . . . . . . 242 High-level generic model for collaborative strategic planning.. . . . . . . . . . . 243 Conversion of rms core values to balanced scorecard. . . . . . . . . . . . . . . . . 243 iTLS generic layout for balanced scorecard. . . . . . . . . . . . . . . . . . . . . . . . . . 247 Organizations responsibilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 251 Different operating strategies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 252 One-way ANOVA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 260 Lean and Six Sigma benets.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 261 Lean, Six Sigma, and iTLS benets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 262 Lean, Six Sigma, and iTLS nancial returns. . . . . . . . . . . . . . . . . . . . . . . . . 263 Lean, Six Sigma, and iTLS Comparison. . . . . . . . . . . . . . . . . . . . . . . . . . . . 264 Contribution percentage by method applied. . . . . . . . . . . . . . . . . . . . . . . . . . 265 A river ow operation networklaptop computer manufacturing.. . . . . . . . 269 V river ow operation networka pick-pack-ship warehouse. . . . . . . . . . . 275 Relationship of increased uncertainty with the levels of two-headed forks. 276
T river ow operation networkautomobile assembly. . . . . . . . . . . . . . . . . 279 I networkairline meal tray assembly operation.. . . . . . . . . . . . . . . . . . . . . 282 High-level process of developing a balanced scorecard. . . . . . . . . . . . . . . . . 286 Continuous improvement steering team conguration model. . . . . . . . . . . . 288 Inventory optimization model using TLS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 295 Inventory initial analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 298 iTLS seven-step process. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 299 Inventory analysis discovering step function. . . . . . . . . . . . . . . . . . . . . . . . . 300 Using a cause and effect diagram to identify key factors. . . . . . . . . . . . . . . . 301
Figures and Tables
xiii
Figure 9.6 Table 9.1 Figure 9.7 Figure 9.8 Figure 9.9 Figure 9.10 Figure 9.11 Figure 9.12 Figure 9.13 Figure 9.14 Figure 9.15 Figure 9.16 Figure 9.17 Figure 9.18 Figure 9.19 Figure 9.20 Figure 9.21
Box plot of inventory before and after iTLS implementation.. . . . . . . . . . . . 304 ANOVA indicating reduction signicance. . . . . . . . . . . . . . . . . . . . . . . . . . . 304 Inventory position after implementation of the iTLS. . . . . . . . . . . . . . . . . . . 305 Goals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 308 Spaghetti ow of the current layout. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 309 Cause-and-effect analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 310 FMEA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 311 New process ow after implementation of improvements. . . . . . . . . . . . . . . 312 Process time reduction monitoring. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 313 iTLS model applied.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 315 The DBR model D 5 drum, B 5 buffer, R 5 rope.. . . . . . . . . . . . . . . . . . . 317 Thinking tool applied for cause-and-effect determination. . . . . . . . . . . . . . . 320 Mobilize work teams.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 321 Buffer management.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 321 Application of SPC, Lean, and Six Sigma tools and techniques. . . . . . . . . . 322 Buffer performance and status dashboard in real time. . . . . . . . . . . . . . . . . . 323 Metallurgical plant expansion.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 323 Examples of four plants performances applying iTLS. . . . . . . . . . 324
Figure 9.22a, b, c, d
Preface
This book is a result of a serendipitous meeting in 2007. Despite different career paths and experiences, we had each arrived at the conclusion that American industry was encountering a continuing, but unnecessary, decline in competitiveness. Over several decades many efforts to improve productivity had come and gone, both because they were ineffective and because in some cases they were counterproductive. We also believed that the situation was worsening because practitioners of the continuous productivity improvement (CPI) methodologies of choiceLean, Six Sigma, and the Theory of Constraints (TOC)often operated in a divisive rather than collaborative fashion. Each group seemed convinced that their methodology was the true religion. While they battled over who had the best solution, the competitiveness of many American industries continued to decline. We believe we know the core problem that caused previous improvement approaches to fail and are concerned that this obstacle will impair current efforts. We also know that when TOC, Lean, and Six Sigma (iTLS) are combined in a unique fashion results improve dramatically. A scientically conducted study in the United States showed that iTLS projects produced more than four times the benets of either Lean or Six Sigma projects. Subsequent experiences in other countries have produced even greater benets. We have had an opportunity to implement iTLS in 15 countries in a variety of operations, including discrete and transactional environments, with phenomenal success. The resulting benets include signicant improvements in quality, productivity, and protability. We also have developed an understanding of how these internal improvements can be further leveraged to increase sales, market share, and prots. The book is divided into two parts. The rst is geared to senior decision makersthose who decide if their company should adopt an iTLS approach. The second deals with the details of how and is directed at those responsible for implementing iTLS. Readers who would like more depth on any section of Part I can go directly to the matching chapter in Part II. iTLS concepts and principals are given relevant coverage in Part I and Part II with various depths. A small
xv
xvi
portion of the material in Part I has been repeated in Part II to provide continuity in the ow of ideas. Throughout the book we often use both we and I in describing our views and experiences. I is used when describing an experience unique to one of us, although we dont normally distinguish which one. We is used when referring to our collective beliefs. If your intention is to learn how to systematically improve quality, process reliability, and throughput while creating a waste-less enterprise, then you should read on. This book is for you!
Part I
Leadership Summary
1
Productivity, Growth, and Prosperity
During the last century, three waves washed over the shores of developed and developing countries, creating both wealth and freedom. These waves were breakthroughs in how companies managed their businesses, and all have deep roots in the automobile industry. Despite beginning in a single industry, these management systems eventually inuenced many industries and countries. The rst system was initiated early in the last century by Henry Ford at Ford Motor Company, the second was led by Alfred Sloan at General Motors, and the third resulted from the efforts of Taichi Ohno at Toyota Motor Company. Although these breakthroughs resulted in enormous increases in productivity, growth, and prosperity, they were not the result of improvements in technology, at least not how technology is commonly viewed. They were changes in how these three automobile companies managed their businesses. Today we stand on the verge of a fourth system of management, which promises similar benets in productivity, growth, and prosperity.
HENRY FORD
So what did Henry Ford do that was so earthshaking? We often view him as the inventor of the assembly line, a very efcient production process with negative overtones of subjecting people to mind-numbing repetitive tasks. Although there is truth in both viewpoints, they miss the magnitude of Fords accomplishment. Fords goal was extraordinarily ambitious, to say the least. He wanted to produce a reliable, dependable automobile that the common man, including those who produced it, could afford. In the early 1900s, only the wealthy could afford an automobile. Such a purchase was far beyond the reach of the great majority, causing most people to live their entire lives within a few miles of their birthplaces. Fords management system changed all that. Between 1909 and 1927, he produced and sold 17 million Model Ts while driving the price down from $970 to $290, and that was without taking into account ination. Ford claimed that every time he reduced the price of the Model T by $1, he created another 1000 buyers. In addition to developing a more efcient method of producing automobiles,
Part I: Leadership Summary
Ford devised a way to greatly increase demand for his product. At one point, he more than doubled the going wage of his workforce to $5 a day while reducing the workday from nine to eight hours. This wage increase allowed his workers to purchase the product they produced by simply saving this wage increase for about a year. This action not only made his workers customers, but it also forced many other companies to pay a competitive wage in order to retain their best workers, again increasing the number of customers for Fords Model T. The effect in the United States was profound and quickly spread to Europe. Economic activity exploded, and the ensuing wealth was much more widely distributed. In rural areas, which comprised most of the United States, families were no longer tethered to the plow and the beasts that pulled it, which sometimes were the farmers themselves. We know a great deal more about the results of Fords management system than we do about the system itself. We are going to call it a river system. The outputs of his system were Model Ts being purchased by customers, often as they rolled off his assembly lines. The inputs were raw materials like iron ore for metal parts, silicates for glass, and textiles for fabrics. The ow eventually became so seamless from raw materials to nished product that it represented a smooth, fast-owing river system. The content or materials owed smoothly, steadily, and directly throughout the entire system, like small creeks feeding larger streams and then a larger rivera river system in which there were no meandering ows, dams, or rapids. Ford focused on expanding the breadth of his river system, shortening the length of the various tributaries and making it ow faster and more smoothly. Ford poured the companys earnings into expanding and improving his river system. At the onset, he basically produced engines and assembled cars. Using the prots generated, he began to produce more of the components needed in his cars. He eventually integrated his supply lines to the point that instead of purchasing and assembling components he was buying basic raw materials such as iron ore, sand, and textiles and converting them into components. He was so single-minded in the pursuit of reinvesting in his river system that other investors sued him in order to force distribution of some of the prots. The rate at which Ford produced cars was dictated by the number and speed of his assembly lines; they controlled the ow rate, because for nearly 18 years demand always exceeded supply. It made for a very efcient management system. Everyone from Henry Ford on down knew exactly how many of each part needed to be received, produced, and shipped each day. The nancial system was equally straightforward. Productivity was simple to measurethe number of cars produced divided by the number of employees times $5 (the daily wage). While expanding the breadth and increasing the ow rate of his river system, he simultaneously reduced its length. In his River Rouge plant, it took only 28 hours for iron ore to be converted into steel for engines, body panels, and other parts and roll off the assembly line as a nished car.
Chapter 1: Productivity, Growth, and Prosperity
Fords system relied on relentless execution. Workers needed to produce a required number of parts day in and day out. There was an intense focus on reducing disruptions caused by defects, absenteeism, equipment breakdowns, and the like. As these disruptions were reduced, his river system owed faster and more smoothly. When volumes grew, the pressure on the workforce increased. Workers were prized for their ability to execute more and more of the assigned tasks. This philosophy, despite the increased wages, eventually led to widespread dissatisfaction in the workforce, unionization efforts, and bitter strikes. Some have minimized Fords achievement by pointing out that, You could get a Model T in any color you wanted, as long as it was black. The color actually was midnight blue, but the point was valid. Ford built his river system to produce one product in one colorno variations or options were available. Product improvements were phased in so as not to disturb the ow. As his river system become more and more efcient, he lowered the price, causing demand for this unchanging product to grow. His river system was so powerful that demand for the Model Ts exceeded supply for over 18 years, despite a huge expansion in output. In essence, this was his management systemconstantly expanding his river system, increasing its speed, shortening its length, and smoothing the ow. In the process, the expense needed to make a Model T continually declined, and his goal of providing reliable, affordable transportation for the average man was achieved. Despite the enormous success of Fords river system, it fell victim to the very success it created. The economic benets that it helped produce created a more afuent society. Many people could now afford to purchase more expensive automobiles, ones that were more comfortable and distinctive. Competitors began to produce closed sedans, which greatly increased comfort. They also added improved features and increased the available stylesfrom roadsters to town carsto more closely match market needs and desire for status and performance. The demand for a basic, reliable, and economical automobile began to decline. As a result, the market shifted from Fords black Model T to the greater variety and improved features of competitors automobiles. Fords river system was so successful that it changed the world it was serving and in the process caused its own demise. It was replaced by a new system more suited to managing increasingly complex organizations producing a variety of products.
ALFRED SLOAN
General Motorss strategy was totally different from Fords. It had 10 car lines, while Ford had only two. Ford owned the low end of the market, the Model T, and had a strong foothold in the high end with the Lincoln. GMs 10 lines covered all the market segments. Its strategy provided the greater variety of body styles, features, and prices that the market was now demanding. However, managing this diversity required a totally different management system.
A single-product river system like Fords could be effectively managed in a centralized fashion. The General Motors assembled by William Durant operated initially in a highly decentralized fashion. General Motors had purchased a number of other companies; some assembled cars and others produced components. Most of these companies were managed by independent-minded founders, many of whom continued to run their companies after acquisition by GM. The 10 car lines often competed against one another in an uncoordinated, overlapping fashion. The individual car companies purchased components from other GM divisions, which, in turn, often served competitors of GM, like Chrysler and Nash. GMs various divisions, unlike Fords, were neither physically integrated nor coordinated by a centralized management system run by a dominating personality. Despite being in an excellent position to capitalize on the fact that the constraint was shifting from production to the marketplace, the lack of an effective system to manage this complexity nearly brought GM to its knees on two occasions. The rst occurred in 1920, when uncontrolled expenditures for expansion and inventory created a cash crisis, resulting in Durants resignation and the eventual elevation of Alfred Sloan as GMs leader. Sloan reined in many of the excesses of this extreme decentralization and resolved the 1920 crisis by somewhat arbitrarily controlling how capital was allocated. However, in 1924, following a boom year, optimism again prevailed in all the operating divisions and they all ramped up production. At that time, GM had little information on the level of retail sales or the amount of inventories in the elda problem that Ford evaded for nearly 18 years. The magnitude of the problem was uncovered during a famous eld trip that Alfred Sloan and Donaldson Brown (GMs treasurer) made in May 1924. They visited major car dealerships and literally counted the cars on their lots. To their dismay, they discovered huge numbers of unsold cars and realized that their factories were producing at a rate far in excess of retail sales. Sloan later recounted that these ndings led him to issue one of his few direct orders to the operating divisions. He ordered them, with a couple of exceptions, to stop producing cars and buying materials. GMs management system was out of sync with the realities of the marketplace. These two experiences greatly inuenced Sloans thoughts on how to manage a decentralized organization while maintaining corporate control of the entire enterprise. Sloans thinking had already progressed to the point that he understood that enterprises should be largely judged based on the return on investment (ROI) they generated. However, in a loosely integrated organization like a 1924 General Motors, how do you decide prices for materials transferred between divisions? A high price would benet the producing divisions and penalize the receiving ones, and vise versa. Differences in prices impacted the ROIs of the various divisions and determined which ones received capital for expansion and which didnt. If
the divisions were truly independent entities, actual market prices would exist. Unfortunately, because they were part of the same corporation, prices for the internal transfer of products could be established only by management, not the marketplace. An answer was needed that made sense to both the corporation and its entities. It was a formidable challenge. GM was fortunate to have gained the services of Donaldson Brown as a top nancial manager. DuPont had purchased a large portion of GMs shares and had dispatched Brown, a valued executive, to ensure a good return on its investment. Brown was instrumental in developing decision-making tools that became the heart of a new management system, one that enabled GM, and eventually other companies, to effectively manage decentralized systems producing a variety of products. It allowed GM to make good economic decisions in this new world of organizational complexity and product diversity. Brown devised a way to calculate the cost of each product, which became the core of what we now call cost accounting, an approach that soon became the basis for management decisions at General Motors and throughout much of the industrial world. Today managers often act as if cost accounting were one of the original Ten Commandments, because decisions based on its use are often considered to be holy and beyond challenge. The key to cost-accounting management was the assignment of the major cost componentsmaterial, labor, and overheadto individual products. Brown believed that the cost of a product could be calculated by adding up these three components. The costs of material and labor were easily attributed to products, because at that time these costs varied directly with the volume of production. When production increased, more material was purchased and more labor employed. Material and labor costs increased in direct proportion to the increased production. When production volumes declined, the opposite happened. So despite changes in volumes, the cost of the material and labor in a product changed only in proportion to changes in material and labor costs. Even in Sloans day overhead expenses did not directly vary with volume, but because they represented a very small part of the overall cost of a product they could safely be allocated to a product without introducing signicant error. During the early years of GMs rise, material and labor accounted for 8590% of the cost of a product, whereas overhead expenses were only 1015%. Although its easy to see why material costs would vary directly with production volumes, today it isnt so obvious why labor expense should. One must remember that in the early part of the last century most factory workers were paid on piecework, not on the number of hours they worked. In addition, companies could hire and re workers at will, which they did, often on a daily basis, in order to keep production volumes and labor costs tightly linked. Knowing the cost of a product enabled companies to decentralize decision making and deal with an increasing variety of products when establishing
external selling prices and internal transfer prices. A division could establish prices that yielded acceptable returns on the required investment. If sales fell far short of expectations on this product, the return on investment would be much less than expected. The division then needed to either reduce the costs of making the product, nd a way to increase sales, or discontinue the product. If not, additional capital would be deployed to products and divisions that provided more attractive returns. This approach worked for both automobiles and components such as engines, transmissions, and the like. Once the cost of a product was known, divisions could make a host of sound management decisions without specic direction from the corporation. If they could reduce the cost of making their products, prots and ROI would increase, and more capital would be available to grow the business. Investing in more efcient equipment had the potential of reducing both labor and material costs. The existing material and labor costs for a particular operation or set of operations could be compared with the expected material and labor costs from using a new piece of equipment. The resulting savings could be used to calculate a return on the investment needed for the new equipment. If the return was above a certain threshold the investment made sense; if not, then other alternatives should be considered. As a result, investment decision making could be pushed lower and lower in organizations. Corporate managers usually retained nal signoff on major investments, but their role shifted to checking the assumptions behind the various requests and allocating capital to the most attractive opportunities. A second avenue for increasing prots was to reduce material and labor costs by in-sourcing production. A make vs. buy analysis could be done to determine if costs would be reduced by producing items internally instead of purchasing them. This analysis simply compared the vendors price to the cost of internal production (material, labor, and overhead). If the savings were sufcient to justify the required change, companies should make the item instead of buying it. Many make-buy decisions could be made at a local level without corporate authorization or awareness. A third way to increase prots and ROI was to increase the efciency of the workforce so that more products could be produced by the same number of people. Time study and industrial engineering techniques were widely employed to determine the most efcient methods and time standards for each operation. Workers were measured and held accountable for meeting these standards. More efcient methods and tighter labor standards resulted in lower costs, an admirable goal. Unfortunately, this process created divisiveness between management and workers. Workers were naturally reluctant to nd or divulge ways to improve an activity, because the result would be tighter standards for measuring their performance without any direct benet to them. In essence, the ability to calculate product cost gave rise to a series of procedures for establishing transfer and market prices, evaluating investment opportunities, deciding whether to make or buy items, and driving down labor costs.
Cost-accounting thinking was essentially a way to decompose an organization into smaller and smaller activities and then focus efforts on reducing the cost of these activities. This approach was in marked contrast to Fords more holistic way of improving his river system by surfacing and resolving obstacles to faster and smoother ow. Another impact of cost-accounting thinking that has had a lasting impact is how managers tried to balance the cost of carrying inventory (producing in advance of need) and the costs of changing over equipment and assembly lines. The basic mechanism for resolving this conict was to calculate an economic order quantity (EOQ). A formula was devised to allow users to do this calculation with their own information. Unfortunately, this formula considered only local costs and not the impact of the EOQ quantity on the entire system. It often resulted in large-lot production for components, causing work to move through the system like rabbits through a python. In the automotive industry, it encouraged the building of assembly lines dedicated to producing only one model because it was more efcient for the assembly line to run continuously than periodically change it over to produce a second model. General Motors, thanks largely to Brown, was the industry leader in developing and using these tools to manage in a world of increasing variety and decentralization. With these tools, complex, integrated organizations could be dissected and managed more effectively. This decision-making approach helped propel GM into a position of world leadership in the automotive industry. It wasnt long before GMs suppliers and many other American and European companies adopted similar systems for managing their companies. The rise of cost-accounting management systems fostered initial increases in productivity, growth, and prosperity. They enabled companies to make sound business decisions that both reduced the cost of their products and increased their availability. We believe that cost accounting should be given a special place in a hall of fame commemorating industrial growth and prosperity. Over the ensuing years, a number of changes occurred that began to erode the effectiveness of these local-cost-based approaches. Several factors caused labor costs to become less and less variable with production volumes. Among these were increases in unionization, changes in laws and regulations, and evolving societal norms. Workers were increasingly paid based on the hours they worked, not on the number of products they produced. Managements were less able to hire and re workers based on short-term production needs. As a result of losing exibility in such decisions, managements became increasingly focused on achieving local efciencies, which encouraged them to build inventories well in advance of actual sales. As a result of increasing inventories, their river systems lengthened and become more removed from actual customer demand. In addition, increased mechanization and improved efciencies signicantly reduced labor cost as a proportion of a products cost. This trend became so pronounced that the U.S. automobile industry eventually signed a labor agreement
10
that essentially made labor a xed rather than variable cost. Workers not needed for the current level of production were allowed to be idle or participate in makework programs (like painting the re hydrants in their community) rather than being furloughed. During these times, they were paid approximately 90% of wages they would have earned if they were producing products. Success in using cost-accounting techniques also caused material and labor costs to decline as a percentage of a products cost. Investment in more efcient equipment and making, rather than buying, more products reduced the proportion of material and labor in a products cost. At the same time, overhead became an increasingly larger portion of the cost of a product. The automobile industry had shifted from selling a Model T, whose design barely changed for 18 years, to annual product redesigns. The engineering, nancial, and marketing staffs needed to develop, support, and sell this increased variety of products grew at a much faster pace than material and labor costs. Fixed costs, which were a mere 1015% of General Motorss product costs in the late 1920s, skyrocketed to 5060% near the end of the century. At that point, instead of 8590% of a products cost varying with volume, it was only 3040%. This shift greatly undermined the soundness of the techniques used for pricing, investing, and deciding whether to purchase or make components, yet these cost-accounting techniques continued to be widely used and began to produce results that had negative, rather than positive, economic consequences. For specic examples, see Chapter 1, Part II. In addition, the use of EOQ thinking often resulted in large inventories that needed to be scrapped or sold at reduced prices when overproduction and model changes created obsolete parts and excess quantities of the prior years models. The negative effects of dedicating assembly lines to single models highlighted this problem. When actual demand exceeded the capacity of an assembly line, there would be a shortage of cars consumers wanted to purchase, resulting in lost sales. An even more common problem occurred when an assembly line overproduced models that were not selling. Because labor efciency was a very important measure and workers could not be furloughed to save costs, plants often produced cars well in advance of actual sales. Unfortunately, in order to make room for the annual new model introduction, many of these cars needed to be sold at a discount. Over time, consumers noticed this pattern, causing many of them to defer purchasing a new car until dealers began offering yearend discounts, further magnifying the problem. The nal and possibly most devastating impact of cost-accounting thinking was how it valued inventories. It employed a value-added concept that assumed that as raw materials are converted into nished products, the labor and overhead associated with these activities should be added to the raw material cost to obtain the cost of the product. These product costs were then used to value inventories. When the level of nished goods increases, a portion of the increase occurs
11
because of the labor and overhead in the product cost. During that reporting period, the labor and overhead costs that increase nished goods inventory are excluded from the calculation of prots for that period. A companys prots can actually increase simply because the level of nished goods increases. The opposite happens when the inventory is reduced. The labor and overhead that had previously been capitalized are now counted as additional expense, lowering the net prot for that period. When managers are rewarded based on net prots, the temptation to inate prots by increasing inventories is often unavoidable. This distortion was not signicant when directly variable costs were a large portion of a products cost. However, when they became a much smaller part, it created a serious problem. The most devastating example I am aware of occurred as the result of a highly successful experiment. This particular automobile company tested a different way of distributing cars to dealers. In one state, it shipped a portion of the cars that dealers ordered to a central distribution point rather than directly to the dealers. The distribution center had some capability to modify cars to t the specic needs of the buyer, such as changing the seats, audio systems, and the like. As a result, the dealers maintained smaller inventories on their lots, but with enough variety that consumers could see and drive the various models. If the consumer wanted to purchase a car with specic features not currently available on a dealers lot, the dealer would check the central inventory to see whether the exact car the customer wanted could be made available in a day or two. If so, a sale was made. The experiment was a great success; inventories and shipping costs were signicantly reduced. Most important, sales rose because more consumers could quickly get the exact car they wanted. Despite the success, however, the car company decided not to expand it to other models. So why didnt the car company make it standard practice for all models? The simple reason was that such a system would signicantly reduce the amount of cars in the eld, which meant a one-time drop in sales to dealers, even though sales to consumers would increase. This inventory reduction would have caused a temporary, but signicant, drop in the companys prots. Fearful of Wall Streets reaction, management decided not to implement the system company wide. Unfortunately, the inertia of long accepted and once successful way of making decisions tended to overwhelm factsold habits die slowly. A marvelous example of this inertia occurred in the English Navy when it dominated the seas. Scurvy was a debilitating disease and a common problem among sailors, pirates, and others who spent extended periods at sea. In 1536, a French explorer, Jacques Cartier, learned from natives along the St. Lawrence River that he could save the lives of men dying from scurvy by using a citrus tonic. In 1753, the British Royal Navy nally approved a lime-based treatment, which incidentally is why British sailors are still referred to as Limeys. The pain of this inertia to change extended over 200 years and resulted in an enormous amount of misery.
12
The change in the elements that comprised a products cost eventually became so widespread that they made the use of cost-accounting management not only obsolete, but actually destructive. The good economic decisions that resulted when most of a products cost varied with volume became bad economic decisions when much less of the cost varied with volume. In addition, the focus on optimizing local decisions resulted in negative effects on the total system. Fords idea of a smooth, fast-owing river system dissipated as supply chains became more clogged with inventories and the results of local-cost thinking. Inertia has blocked change to a decision-making system more suitable to the current environment and has devastated many companies. Its similar to the rise and fall of Fords river system. The seeds of its downfall grew as a result of its success, and they still infect decision making in many companies today.
TAIICHI OHNO
Sloans management system, like Fords, was developed in the U.S. automotive industry and eventually spread to other industries and countries, greatly beneting those who adopted it. The next wave of improvement, however, originated in Japans automobile industry. Taiichi Ohnos management system, often referred to as the Toyota Production System (TPS), had a huge impact there and reverberated throughout other countries. Its acceptance in the United States and Europe, however, has not been universally positive, both because of inertia and a lack of understanding as to why the Toyota Production System was so effective. This misunderstanding was in part due to Ohnos successful efforts to mislead and confuse non-Japanese companies. After the Second World War, the bicycle was the standard mode of transportation in Japan and only the wealthy few could afford an automobile. Ohnos goal was not so different from Fords. He wanted to help Japan become a modern industrial nation by producing an automobile that could be purchased even by the workers who produced it. Why was Ohnos Toyota Production System a leap forward from Fords? Essentially they were both highly efcient river systems with the same types of inputs and outputs. However, Ohno built a river system that worked for multiple products with uncertain demand. Unlike Ford, Toyota produced several models in a variety of colors and with a number of options. Creating an efcient river system for such an environment was much more difcult. Ford had developed a highly integrated supply system with dedicated manufacturing processes that produced the same quantity of each item day in and day out. Volume increased only when new assembly lines were added or when the productivity of the existing lines increased. The assembly lines and most
13
machines were dedicated to make the same item, and machine changeovers were rare, which greatly simplied synchronizing the ow of materials. Ohno had no such luxury. While the demand for the Model T exceeded Fords capacity for 18 years, demand for the various Toyota models was uncertain and subject to frequent change. Forecasting sales of the various Toyota models was compounded by the annual introduction of new models by competitors. In addition, Ohno had to produce different models that were assembled from a variety of parts. Since he couldnt dedicate equipment, he had to frequently changeover equipment in order to produce the needed parts. Ohno faced another obstacle Ford did not have to deal with: the widespread acceptance of cost accounting for managing complex production organizations. Ohno told me that cost-accounting thinking was the biggest obstacle he had to overcome in developing his system. When he eventually surmounted this obstacle, he gained a competitive edge, because many of his competitors still have not yet overcome this hurdle. Ohno could have dealt with these obstacles in the same way as other car companiesby producing large batches of the various parts and models to avoid changeovers and obtain local production efciencies. The result would have been dams (piles of inventories), rapids (shortages that required expediting), and meandering ows in his river system. It also would have required maintaining a large supply of cars in the showrooms to buffer the assembly lines from changing consumer tastes. It was clear from my discussions with Ohno and from his writings that he rejected these options. He spoke clearly and forcefully about developing a smoothowing river system that closely linked actual sales to the assembly of cars, production, and receipt of components. He believed it was the only way that Toyota and Japan could compete with entrenched, well-nanced competitors in the United States and Europe. He knew that Japan initially had some advantage due to low labor costs, but that this competitive edge would eventually disappear as Japan became a modern industrial nation. He believed he had to devise a more efcient management system than his competitors in order to reach his goal. He spent over 40 years developing and rening such a system. The results of his efforts speak for themselves. In addition to the three-headed hurdle of uncertain demand, machine changeovers, and cost-accounting thinking, Ohno had to rely on vendors for many components. As a result, he had little direct control over a large part of his river system. In order to have a fast, smooth-owing river system like Fords, the assembly of cars, production of components, and receipt of materials needed to be tightly linked to actual sales. This required exible rather than dedicated assembly lineslines that could produce several models. It also meant that the machine shops, which produced the major components such as engines and transmissions,
14
had to be equally exible, necessitating very quick changeovers. The production of large batches of parts was totally incompatible with his river system, although it was in line with cost-accounting thinking. Finally, he needed vendors who were able to synchronize deliveries with Toyotas needs. Two factors greatly inuenced Ohnos efforts. A layoff of workers in June 1950, during a postwar period of great hardship, resulted in a bloody strike, causing Toyota management to vow to avoid such layoffs in the future. The second was the sincere belief that workers were the local experts and should be treated accordingly. The rst inuence convinced Ohno that Toyota couldnt afford the boom and bust cycles caused by building more cars than consumers were buying; this practice caused additional hiring and increased production followed by severe cutbacks and layoffs or unacceptable nancial losses. His system had to be much more closely linked to actual sales in order to avoid these uctuations. Second, he wanted to develop a system that used not just the physical strength of his workforce, but also its knowledge and skills. Ohno pursued the development of his river system sequentially. He started at the assembly line and gured our how to intersperse different models. By producing a variety of models each day he was able to more closely synchronize production with sales. This capability allowed him to greatly reduce Toyotas reliance on forecasts and avoid both shortages of cars that were selling and excess inventory of those that were not. This approach was met with considerable resistance by the workforce because the workers believed it was more efcient to assemble a large quantity of one model and then switch over and assemble a large quantity of a different model. Ohno knew such an approach would make assembly more efcient but the company less efcient. Another example of his drive to link production closely with sales was the development of models that could be either a left-hand or right-hand drive. These cars were shipped to a distribution center in Europe where the drives were installed, depending on actual sales in order to more closely link production and sales. After a number of years of development, the mixed-model assembly process was working well. Ohno then moved to the machine shop, where he met even greater resistance. Workers were accustomed to producing parts in large lots in order save the cost of extra setups. The equipment used to produce parts was the same that was being used by Western companies and had been designed for efcient large-batch production. He told me that this thinking was deeply imbedded in the minds of his people. Workers believed it was inefcient to frequently change over their machines. He stressed to them that what was important was the efciency of the company, not the efciency of a particular operation. When I asked how he persuaded them to do it his way, he smiled and said, I tried logic and persuasion, but neither worked, so I used a gun! I threatened that if they didnt do it my way I would literally shoot them. It took several years, but they nally did it my way.
15
He claimed that the resistance to small-batch production was strictly psychological. As an example, he talked about large stamping presses that previously required more than eight hours of a skilled technician to do a changeover. By closely analyzing these activities, he was able to change the press over in less than ve minutes using only semiskilled workers. He overcame order-quantity thinking by pointing out that if the time for performing a setup were greatly reduced then the formula would suggest a small rather than a large batch. After several years of effort, the machine shop was able to produce parts in small batches and synchronize its production with assembly line needs. His next step was to align vendors with his internal river system. He began by inviting all vendors to a meeting at Toyota to both explain and demonstrate what Toyota had accomplished. He told them that Toyota would assist them in changing their systems, but he did not insist that they do so. Again, over a period of several years the vendors drew on Toyotas experience and made the changes necessary to synchronize their deliveries to Toyotas schedules. Ohnos approach created the structure for a river system, but in order to make it ow more quickly and smoothly he needed a way to systematically eliminate the myriad factors that disrupt the ow of work. Once the major disruptors, like long setup times, were eliminated, he developed a system to both control the ow of work and to surface problems that disrupted ow. The system, called kanban, allowed for inventories of predetermined size between operations or groups of operations. These inventories were used to decide when an operation should produce and when it should stop producing. If the inventory immediately following an operation was at its preset level, then the preceding operation should stop producing. If the inventory was less than the preset level, then the preceding operation should continue to produce. The purpose of the inventory was twofold. First, it served as a buffer to protect the ow of work from all but the worst disruptions, such as defects, machine problems, and worker performance. Second, it used disruptions as a reason to temporarily halt production and focus on xing the cause of the disruption. The workers knowledge of the process often played an important role in resolving the cause of the disruption. While Ohnos system, like Fords, drove for relentless improvement, it relied on both the physical capabilities and the knowledge of the workforce. Once the disruption was resolved, production resumed. When work was again owing more smoothly. Ohno would further reduce the amount of inventory in the system so that variations would again cause the system to periodically stop. Each stoppage was used to identify the cause so that improvement efforts could be initiated to remedy the problem. When enough variations were eliminated so that smooth ow resumed, more inventory was removed so that stoppages once again occurred. This trial-and-error process was repeated over and over again to identify and eliminate the causes of disruptions and enable Ohnos system to ow more rapidly and more smoothly.
16
Ohnos process of identifying problems came at a steep price. Whenever a line was stopped it meant that throughput was lost, which negatively impacted prots and ROI. Once his kanban system was in place, Toyota and its vendors continued to rene the system by reducing the variability that caused such stoppages. They systematically reduced the amount of inventory in the system so that smaller and smaller disruptions affected the ow, which resulted in more efforts to reduce these disruptions. After repeated efforts over many years, he nally had created a fast, smooth-owing system from his vendor base to the purchasers of Toyotas automobiles. While it took nearly 40 years to convert his idea of a smooth, fast-owing river system into reality, in the end his efforts yielded great results. In the early 1990s, Eli Goldratt and I met with Taiichi Ohno to better understand his approach. See Part II of this chapter for a detailed description of this fascinating session. We learned two really important lessons. First, all of Ohnos efforts to improve his Toyota Production System were geared primarily toward one objectiveselling more cars. Improving quality did reduce the cost of production and helped increase prots. However, Ohno stressed, the greatest leverage from his quality efforts came from the increased sales that resulted from the superior quality and reliability of their cars. Following this quality emphasis, they focused on implementing a just-in-time philosophy to reduce inventories. Ohno again stressed that the larger benet came not because of the reduction in investment but because lower inventories allowed them to become more closely connected with consumer demand. As Ohnos river system became more and more effective, other Japanese companies, including his competitors, came to learn the source of Toyotas success. He openly shared how his system worked and why it was so effective. A number of companies adopted his approach, which contributed greatly to Japans rise in the industrial world. He also described to us how he went to great lengths to confuse Western visitors as to why his system worked so well for fear they would copy it before Japan could fully compete with Western companies. At the time of our meeting, he had become comfortable with the strength and capability of Japanese industries and was now willing to share the source of their success. Although it had taken Ohno nearly 40 years to develop and rene his system, during our meeting we provided an insight that made him reevaluate how he could have developed his river system much more quickly. This incident is described in detail in Chapter 1, Part II. Essentially, it involved refocusing his improvement efforts. In his drive to speed and smooth the ow of his river system he would halt production for anything that disrupted ow, even though it resulted in lost throughput. Our simple example illustrated how Ohno could have developed his system much more quickly by rst placing most of his inventory in a buffer prior to the operation that was most constricting ow (bottleneck) rather than scattering inventory throughout the system. In this manner, very few disruptions would ever starve the bottleneck, avoiding lost throughput. The disruptions
17
that most deeply or most frequently threatened depletion of the buffer could be traced to their causes. The sources of these disruptions would be the prime candidates for improvement. Essentially, the degree of buffer penetration would provide a Pareto list of improvement opportunities. Using this approach, throughput is increased, less inventory is required, and the causes of disruptions are prioritized. This laser-like approach enables a company to much more rapidly develop a smooth, fast-owing river system without the loss of valuable throughput. We knew that Ohno agreed when he exclaimed, If I had thought about it that way I could have developed my system in less than half the time. He said that he didnt have a way to know which disruptions were most important, so he worked on eliminating each disruption as it appeared. The obvious question is whether there is a seed of destruction in Ohnos system that will cause its demise. We think the short answer is no. However, we do believe that by building on the lessons of Ford, Sloan, and Ohno, a much superior and more widely applicable management system can be constructed. The major drawbacks to Ohnos system are twofold. First, it takes a long time to embed it in the DNA of a company and achieve a true competitive edge. Second, it has been used primarily in higher volume, stable production environments. Unfortunately, many companies do not have this ideal environment and certainly few can wait many years to achieve similar benets.
iTLSA FOURTH WAVE

What is this new wave that might produce another tsunami of economic benets and growth? If Ford needed 5 years, Sloan 15, and Ohno nearly 40 years to perfect their management systems, how long will it take for a fourth wave to have a real impact? We believe that, for the most part, the knowledge and techniques needed to create a fourth wave already exist and have been tested and proven in a variety of companies, industries, and countries. Much of the heavy lifting has already been done. It is now a matter of assembling the pieces in a coherent fashion so that they can be repetitively used. As is evident from the title, iTLS integrates the Theory of Constraints (TOC), Lean, and Six Sigma, in a unique and effective fashion. No one of these methodologies alone contains all the elements needed to create a fourth wave. TOCs strength lies in providing focus for improvement efforts. Its emphasis on generating more throughput by breaking constraints to increase volume provides the needed direction for all improvement efforts. TOC, however, lacks many of the analytical tools and techniques needed to expand constraint capacity, eliminate disruptions in the ow of work, improve quality, and reduce variability. TOC also does not take in account human resources values and signicance.
18
Lean, in constrast, is replete with tools for reducing the seven wastes (muda) but lacks a global focusing mechanism for prioritizing when and where to attack these wastes. Effort to reduce some wastes can itself be a waste. Six Sigmas strength lies in its statistical tools for reducing variations in processes. Like Lean, it is short on a focusing mechanism for prioritizing actions for reducing these variations and removing the most important wastes. Because of the similarities, overlaps, and shortcoming of these three methodologies, it has not been a simple process to develop an iTLS system capable of creating a fourth wave of prosperity, productivity, and growth. We believe that the unique combination we have developed and tested has the potential to be such a system. We call this unique combination iTLS. From this point forward, we use the terms TLS and iTLS interchangeably. So what is required to implement this new management system? It consists of three major elements. The rst is the development of an overall strategy to manage our river systems. We refer to such a strategy as a Throughput Operating Strategy (TOS), because the primary emphasis should be on continually growing throughput (revenue) and protability. Every organization produces and delivers its products or services through a network of activities. When these networks are mapped so that the ows of activities are displayed vertically, they take on one of four shapes, or a combination of these four shapes. The fact there appears to be only four shapes greatly simplies the development of a Throughout Operating Strategy. These four shapes roughly resemble either an A, V, I, or T. In an A network, a variety of inputs, or materials, typically converge to form a single or small number of end items. Organizations that fabricate and assemble products are typically A structures. Ford, Sloan, and Ohno all dealt with A-shaped river systems, although they varied greatly in complexity.
A V-shaped river system may initially look like an upside down A, but it has entirely different characteristics. Instead of the ow of items converging to form a
19
small number of end items, they diverge to form a large, sometimes a very large, number of end items. Examples of V structures include oil reneries, semiprocess industries (e.g., steel, aluminum, paper), and operations that convert animals into a wide variety of food products. Many distribution systems, reverse logistics, and repair operations also take on the shape of a V.
An I structure is a river system with a singular ow, in which products neither converge nor diverge. A singular input is processed through a number of operations and emerges as a single item. Wafer fabrication plants and assembly lines are examples of I structures. In a wafer plant, a wafer of silicon may be processed through more than 300 operations, yet it emerges as a single wafer, albeit with all types of circuitry etched on it.
20
The T structure is probably the least common of the four river systems. Its essentially a network in which a number of items ow to an assembly point where they can be combined in myriad ways to form a much larger number of end items. An excellent example of T networks are automotive companies, where a few thousand parts can be combined to produce millions of unique automobiles, especially when color, fabric, audio systems, and so forth are considered.
These four networks, or combinations of them, represent the river systems by which almost all products and services are produced and distributed. Once the shape of a network is known, the next step is to select a control point to synchronize production and sales and to control when materials are released into the system. In most organizations, work is released much earlier than necessary, which inevitably creates confusion about production priorities. This confusion is magnied by local measurements, which often cause people to work on what is easy, or benecial to do, rather than what is necessary to do. These murky and changing priorities both slow and disrupt ow. The control points provide the linkage between the procurement, production, distribution, and consumption of a companys products. It is important to distinguish between the sale of a companys products and their consumption. Sloan and Donaldson discovered to their dismay that just because dealers were buying cars, it didnt mean that they were being sold to consumers. The second element in our iTLS system is a robust methodology to continually speed and smooth the ow of the river systema superior kanban system. It begins with a process for both exposing the root causes of the disruptions most impacting throughput and then providing tools for eliminating the sources of these disruptions. Finally, it contains a process for prioritizing disruptions so that our improvement efforts are focused on the areas that will have the most positive impact on the total system. Without such a process, we are doomed to using Ohnos trial-and-error method. Among the most important of these disruptions
21
are perceived bottlenecks to the ow. Even worse are bottlenecks that seem to oat or shift within the river system. Our experience is that very few, if any, organizations have real production bottlenecks that cannot quickly be broken with the right focus and effort. We have found that a minimum of 25% more can be produced in every organization by applying proven tools to perceived bottlenecks. Archimedes, a famous Greek philosopher, supposedly claimed that If I had a long enough lever I could move the whole world. Expanding the capacity of our organizations by breaking bottlenecks usually means that the organization can produce additional products at essentially the cost of the purchased materialsa very, very long lever. It is estimated that these three methodologies (TOC, Lean, and Six Sigma) comprise more than 90% of current improvement efforts. Unfortunately, the practitioners of these methodologies often spend considerable time touting their methodologies and defending their approaches rather than trying to determine if and how they could be combined into a much superior system. The good news is that the environment is beginning to change. My research and practice concluded that a successful TLS methodology should use TOC to determine where to focus improvement effortsto set the priorities. Based on these priorities, Lean, with its array of tools for reducing waste, is best used to identify and eliminate the causes of these wastes. Then, to stabilize the processes and achieve the desired statistical control for sustainability, we employ Six Sigma tools. The combination of Lean and Six Sigma focused by TOC, which I call iTLS, provides a proven methodology for smoothing and speeding the ow of work in our river systems. At the rst Continuous Productivity Improvement (CPI) Conference in 2006, sponsored by Weber University, I presented the results of an extensive and rigorously conducted 2.5-year test of a unique comparison of the iTLS, Lean, and Six Sigma methodologies. The results of this experiment demonstrated that iTLS yielded four times more benets than projects using either Lean or Six Sigma. Even more telling was the fact that iTLS projects were responsible for 80% of the nancial benets even though they were used in less than 30% of the plants. More than 211 practitioners in 21 plants conducted 105 projects, which demonstrates the validity of the results. I made a similar presentation to the American Production Inventory Control Society (APICS) during the same year and in articles in APICSs magazine describing the enormous effect on protability, agility, and quality. Frankly, I was overwhelmed by the interest and excitement created among the CPI practitioners. In 2007, I was a keynote speaker at Goldratts TOC-ICO conference in Nevada to introduce iTLS to TOC practitioners and report on the increased benets that result from the interaction effects when TOC, Lean, and Six Sigma are combined in a logical sequence. iTLS was warmly embraced by the TOC practitioners, including Eli Goldratt, its developer.
22
Since 2003, iTLS has been used by more than 4000 practitioners in more than 70 plants in the United States, Canada, United Kingdom, Germany, France, Finland, Israel, Mexico, Brazil, Ireland, Spain, Hungary, China, India, South Korea, and Singapore. As our iTLS process has become rened and better understood, the results have improved by more than 50% over the initial test. One day in the fall of 2009, I received a call from two Brazilian consultants, Celso Calia and Fabiano Almeida, partners with Goldratt Associados, de Brasil, who specialize in implementing continuous improvement processes in Brazils heavy industries. Historically, they had focused on using TOC. Celso had read my articles and other materials published by APICS and wanted to arrange a meeting. I agreed and at a meeting in Dallas, Texas, he gave a PowerPoint presentation that showed how they had successfully implemented iTLS and achieved very signicant results. He explained that using TOC had allowed them to make signicant positive changes, but variability in the processes was killing them, and they could not understand why. They seemed to be constantly chasing ghosts and oating bottlenecks. With considerable reservations they decided, at least temporarily, to shed their current paradigm and apply what they had learned from my articles and presentations. They were pleasantly surprised that they were able to not only achieve signicant process improvements, but were also able to systematically control process variability from the onset. Now they wanted more . . . they wanted to learn more about the nuts and bolts of the iTLS process and its details, and asked if I could help them. They were very proud of their accomplishments and so was I . . . like a proud grandparent! Having agreement on a 40,000-foot view of how these three methodologies should be combined is a major step forward. However, given the scope of the various tools and techniques and the fact that in some cases they overlap, developing a ground-level working process was not a simple task. It was similar to trying to combine the best racing engine, the best transmission, and the best suspension system in order to produce a superior race car. In summary, creating a smooth, fast-owing river system requires three elements. First, we need to understand the shape of the network(s) by which we deliver our products or services and develop an appropriate TOS for managing the ows. Ideally, the TOS will encompass procurement, production, and distribution so that we can more closely connect all these activities with the marketplace. Second, we need a robust process for prioritizing and removing the disruptions that impede rapid and smooth ow so that the time needed to turn materials into purchased products shrinks. Third, we need a combination of courage and consensus to make the transition from managing with a local focus to a more global one. The broader and deeper the management consensus, the less courage is needed and vice versa. Today, we oscillate between local and global actions. Almost everyone who has worked in an organization that produces and delivers products and services
23
has experienced the hockey-stick impact of the end of the month (sometimes its the end of the quarter); during the rst portion of the period we focus on local performance measures (efciencies, limiting overtime, long production runs, etc.). As we near the end of the period, the emphasis turns sharply to the global focus of meeting shipping goals. We then take the opposite actions in order to get as much produced and shipped as possible. Once the new period starts, we immediately revert to the old ways of operating. This oscillation of effort continues month in and month out, considerably disrupting the ow of our river systems. The Fourth Wave Management System, iTLS, provides a consistent method for running organizations. Educating employees in the new TOS helps rene it and engenders both understanding and acceptance, providing a solid consensus for change. When measurements are closely aligned with a more global approach, they reinforce the desired behaviors. The timetable for adoption of a Fourth Wave Management System depends almost solely on overcoming inertia, because the changes needed are mostly in policies and mind-sets, not physical changes. Hopefully, companies will move much more quickly than the British did in using citrus drinks to eliminate scurvy. Great organizations with excellent performances still need to constantly stay on top of Voice Of the Customer (VOC) and the Voice Of the Processes (VOP), particularly when it comes to favoring costs savings ahead of safety and quality. The slightest slip in those dimensions can cause catastrophes that damage the organizations reputation, good will, and market health. The organizations past performance cannot necessarily guarantee present and future health without a commitment to constant improvements that strengthen the basic fundamentals that were causes of successes for the organization. Lets take a moment and reect on a devastating situation in 2010 with the Japanese automobile industry, causing Toyota to recall millions of its vehicles due to manufacturing defects. Toyota recalled over 8,000,000 of its vehicles. The recall included many models, such as the legendary Prius hybrid automobile. Aside from losing nearly one billion dollars a month in cost of production shutdowns, on top of the mammoth costs for the recall for the millions of vehicles, Toyotas pristine consumer condence was severely bruised. Its stocks devaluated by double digits in matter of only a few weeks as the automakers defects became public knowledge. Toyota, the icon of auto-making quality and technology, became the subject for the stand-up comedians! Toyotas leading market position in the auto industry came under question and began sliding backwards. This became an opportunity for the other automakers to penetrate into Toyotas market share, which previously was a protected fortress. What do you think happened to Toyota? Why didnt the famed Toyota Production System (TPS) protect this once-ne organization? Did it not seem as though Toyota lost focus on what was important, allowing reliability variability to sneak into its multinational operations? The TPS has been the cornerstone of
24
its impressive quality and reliability record. But as discussed earlier, the Lean system has its limitations. Auto industry failures were not limited to Toyota. The National Highway Trafc Safety Administration reported 492 recalls for the same year, 2010, involving more than 16.4 million vehicles. Among them were: GM with 1,300,000 vehicles, Nissan with 539,864 cars, Honda with 410,000 Odyssey minivans, and Ford with 18,000 Fusion and Mercury hybrids. We believe that our proposed application, iTLS, provides the needed long-term protection for organizations protability, reliability, and agility. Frequently, well-performing organizations assume that the challenges for achieving excellence have been met. These organizations often dont invest in the additional resources needed to sustain their competitive edge. That is why many companies have up-and-down performances. When performance is poor, they spend energy and resources to improve things, then, as the metrics indicate necessary improvements have been achieved, the organization relaxes and risks relinquishing their sustainability efforts. Over time, performance plummets again, and this vicious cycle repeats. We believe that by properly implementing iTLS, signicant bottom-line benets will appear within a couple of months and that within one to two years many companies will have more than doubled their prots. We know that making such claims is extremely dangerous, not because they are not possible, but because of the reaction of you, the reader. You may be inclined to immediately put down this book and dismiss us. Its a totally natural reaction, because these claims are so far beyond most peoples personal experience and intuition that they assume there is no chance of their being valid. Smart, dedicated people in many companies have worked very hard and for a long time in order to squeeze out much smaller gains. If our claims are true, it suggests that we have been either really stupid or that some magic bullet has been invented. Of course, neither of these is true. We simply ask you to read on to understand whats involved in this Fourth Wave Management System. If it makes sense to you, try it. If it works, extend it and share it with others to help prevent future economic and industrial disasters like the one we currently experiencing.
Index
5S-CANDO, 140141
A
A networks, 6769, 268273 accounting, cost, 79, 9296 activities, control of, 227230 agility, 148150 analysis of variance, 333 analyze, 159160 Anderson, M. J., 329 Aquilano, N. J., 329 Arai, K., 331 assembly lines, 4 assignable cause, 333
Brue, G., 329 Brussee, W., 329 BSC. See balanced scorecard (BSC) business process reengineering (BPR), 2627 business value-add (BVA), 131 BVA. See business value-add (BVA)
C
calibration, 334 capability, 334 capability index, 334 capability study, 334 capable process, 334 Carnell, M., 330, 332 Cartier, Jacques, 11 case studies Celso Calia, 314325 electronics manufacturer, 296306 inventory, 293296 valve assembly, 306314 Vorantim, 318325 cause-and-effect diagram, 334335 Cavanagh, R., 331 CCPM. See critical chain project management Celso Calia case study, 314325 centerpoint, 335 champion, 253 Champy, J., 330 characteristic, 335 characterization, 335 Chase, R. B., 329 checklist, 335 Chowdhury, S., 331 common cause, 335 condence interval, 335
B
Bakerjian, R., 329 balanced scorecard (BSC), 240244 components of, 244249 Ballis, J. P., Sr., 329 Ballis, John, 110 Barnard, W. W., 329 behaviors, motivating, 7778 Benbow, D., 329 Benson, G. P., 330 bias, 333 Black Belts, 50 blocking, 333 Bluman, A. G., 329 bottleneck, 16 box plot, 333 BPR. See business process reengineering (BPR) Breyfogle, F. W., III, 329 Brown, Donaldson, 67, 9, 83
347
348
Index
constraint, 334 exploitation, 208211 removing, 230236 constraint management, 129 continuous improvement. See continuous productivity improvement (CPI) continuous productivity improvement (CPI), 108, 195 control, 160161, 335 control chart, 335 control factor, 335336 control group, 336 control limits, 336 control point, 7273 control process variability, 221227 COPQ, 336 correlation, 336 cost accounting, 79, 9296, 100 cost of poor quality. See COPQ cost reduction programs, 25 Cox, J., 330 CPI. See continuous productivity improvement (CPI) credibility, of measurements, 225 Creveling, C. M., 329 critical chain project management (CCPM), 42, 249250 critical characteristic, 336 critical parameters, 336 critical to quality, 336 Crosby, P. B., 329 Crowther, S., 329 CRT. See current reality tree Cupello, J. M., 32 current reality tree (CRT), 41 customers, 244245, 336
Detriot Motor Company, 89 DFSS. See Design for Six Sigma (DFSS) direct labor reductions, 169 distribution, 336 DMAIC, 4649, 158161 dot plot, 337 DOV. See design, optimize, and verify (DOV) DPM. See defects per million (DPM) DPU. See defects per unit (DPU) drum-buffer rope system, 104 Durant, William, 6 Dusharme, D., 329
E
economic order quantity (EOQ), 910 effect, 337 EI-Haik, B. S., 332 electronic manufacturer case study, 296306 enterprise resource planning (ERP), 26, 186 EOQ. See economic order quantity (EOQ) ERP. See enterprise resource planning (ERP) escaped detection, probability (DET), 216, 220 evolutionary operation (EVOP), 337 EVOP. See evolutionary operation (EVOP) expert, 253254
F
factor, 337 factor level, 337 factor range, 337 factorial experiment, 337338 failure mode effect analysis (FMEA), 215217 Farah, K., 331 features, 246 Fisher, R. A., 329 ve focusing steps, 3941 ve whys, 214215 Florida Power and Light, 28 ow rules, 73 FMEA. See failure mode effect analysis (FMEA) focus, 205208 focus groups, 338 Ford Motor Company, 35, 8991 Ford, H., 329 Ford, Henry, 35, 17, 73, 83, 8991 Fourth Wave Management System, 23 Fox, R. E., 330 Fox, Robert, 110 frequency of occurrence (OCC), 215216, 219 FRT. See future reality tree (FRT) future reality tree (FRT), 42
D
data-driven, 336 De Feo, J. A., 329 defects per million (DPM), 337 defects per unit (DPU), 337 dene, 158159 delivery performance, 245 demand driven, 143144 Deming, E. W., 329 Design for Six Sigma (DFSS), 49, 161166 design phase, 162163 Design, Measure, Analyze, Improve, Control (DMAIC). See DMAIC design, optimize, and verify (DOV), 161 DET. See escaped detection, probability
Index
349
G
General Motors, 3, 510, 83, 9192 George, M., 330 George, M. L., 329 global focus, 257266 Godfrey, B. A., 330 Goldratt, E. M., 330 Goldratt, Eli, 15, 21, 39, 96106, 110 Goldratt, Eliyahu, 123 Gooch, J., 330 goodness-of-t, 338 Great Depression, 91 Green Belts, 50 growth, 246249 Gryna, F. M., 330
H
Hammer, M., 330 Harrington, J., 330 Hibino, S., 331 histogram, 338 Hobbs, D., 330 Hoffherr, G. D., 330 Horn, S., 331
I
I networks, 7172, 281284 identify, 162 Imai, M., 330 improve, 160 improvement, 25, 31 failing, 3537, 191193 history, 185187 measuring, 3135, 187191 missing link, 7881 improvement challenges, 118121 improvement dilemma, 111121 improvement efforts focusing, 7677 motivating, 7778 improvement programs, comparisons, 113 in control, 338 Inamori, K., 330 increase throughput, 169170 individuals chart, 338 inspection, 339 interaction, 339 inventory case study, 293296 inventory management, case study, 293296 inventory optimization model, 294295
investment decisions, 9293 iTLS, 1922, 24, 5360, 84, 106110. See also TLS application, 202, 204 applying, 5660 benets, 250 case studies, 293325 competitive advantage, 252 customer benets, 250 dened, 195196 effectiveness, 6266, 257266 event sequence, 5660 examples, 293325 experiment, 6166, 257266 features, 5556 function, 198202 growth strategy, 251252 initial implementation, 197198 inventory management, 294296 versus Lean, 259266 model, 198202 monitoring systems, 230231 river, 109110 roadmap, 238240 shareholder benets, 250 and Six Sigma, 196, 259266 starting, 253 steps, 202204 successful implementation, 237238 sustain strategy, 251252 sustainable implementation, 250251 and TOC, 196, 259266 and Toyota Production System, 196 training classications, 253254 types of organizations, 250251 unique features, 202
J
Jacobs, R. F., 329 JIT. See just-in-time (JIT) Jones, D. T., 332 Juran, J. M., 330 just-in-time (JIT), 61, 89, 257
K
Kaizen, 141142 kanban, 1516, 20, 144147, 339 kanban system, 102103 KCIV. See key critical input variable (KCIV) key critical input variable (KCIV), 124 key input variable (KIV), 124
350
Index
KIV. See key input variable (KIV) Kubiak, T. M., 329
N
Nadler, G., 330, 331 Nadler, Gerald, 110 net prot, 32, 188 Neuman, R., 331 noise factor, 339340 non-value add (NVA), 131 normal distribution, 340 NVA. See non-value add (NVA)
L
labor, improvements, 170183 LaMarch, J., 330 Launsby, R. G., 331 leadership responsibilities, 285291 Lean, 1718, 26, 37, 4245, 106110, 112113, 130150, 257 application, 211212 versus iTLS, 259266 learning, 246249 Levinson, W. A., 330 linearity, 339
O
OCC. See frequency of occurrence (OCC) Ohdahl, T. P., 331 Ohno, T., 331 Ohno, Taichi, 3, 1217, 42, 74, 83, 96106 operating expenses, 33, 189 optimize phase, 163165 order fulllment value stream, 135 organize, 287288 orthogonal array, 340 out of control, 340 outliers, 340 overproduction, 133
M
make versus buy, 9496 Malcolm Baldrige Quality Award, 28 management issues, 7581 Mann, D., 330 markets, 244245 Master Black Belts, 50 materials requirement planning (MRP), 26, 186 McClaves, J. T., 330 Meadows, B., 329 measure, 159 measurement credibility, 225 errors, 226 reliability, 225 system validity, 225227 Mills, C., 330, 332 missing link, 7881 mobilize, 204208, 286287 mobilize, organize, speed up, tie up. See MOST model, 339 Model T, 35, 83, 8991 monitoring systems, iTLS, 230231 Montgomery, D., 330 Moody, P. E., 331 Moran, J. W., 330 MOST, 176, 285289 application, 289290 feedback, 291 motion, 133 MRP. See materials requirement planning (MRP) muda, 28, 131, 133, 339 multitasking, 249
P
Pande, P., 331 Pareto analysis, 341 Parkinsons Law, 249250 parts per million, 340 Pearson, K., 331 perfection, 147148 Pirasteh, R.M., 331 poka-yoke, 143144 population, 341 precision, 341 prerequisite tree (PRT), 42 prevention, 341 price, 245 probability plot, 341 process, 341 capability index, 152 ow matrix, 137 process capability study, 341 process potential, 341 production volumes, 9 production, seven sins, 133 products, 246 project sponsor, 253 PRT. See prerequisite tree (PRT) Ptak, C., 330
Index
351
Q
quality, 245246
R
R chart, 342 R-squared, 343 randomization, 341342 range, 342 rational subgroups, 342 reliability, of measurements, 225 repeatability, 342 reproducibility, 342 Rerick, R. A., 330 residual, 342 resolution, 342 response, 342 response surface model (RSM), 342 return on investment (ROI), 32, 93, 126, 188, 190 River Rouge Plant, 4, 89 river system, 45, 1216, 20, 67, 90, 97106, 109, 267284 ROI. See return on investment (ROI) Roos, D., 332 rope, 73 RSM. See response suface model (RSM)
SPC. See statistical process control (SPC) special cause, 344 specialist, 253254 specication limits, 344 speed-up, 288289 Srikanth, M. L., 331 stability, 344 stabilizing, 230236 stable process, 344 standard deviation, 344 standard error, 344 statistic, 344 statistical control, 344 statistical process control (SPC), 139140, 344 stratication, 345 student syndrome, 249 supporting activities, control of, 227230 survey, 345 sustainable operation, 179 system reevaluation, 236244
T
T networks, 7071, 279281 Taguchi, G., 331 takt, 136, 345 takt board, 232236 target value, 345 The Goal, 39 theory of constraints (TOC), 17, 26, 37, 3942, 106110, 112, 113, 123129, 345 application of tools, 205 and iTLS, 196 thinking processes, 4142 throughput, 33, 189 improvements, 170183 increase, 169170 throughput operating strategy (TOS), 18, 41, 6774, 267284 tie loose ends, 289 time buffer, 73 TLS, 18. See also iTLS TOC. See theory of constraints (TOC) TOS. See throughput operating strategy (TOS) total quality management (TQM), 2627, 126, 186 Toyota, 83 Toyota Motor Company, 3, 12, 15, 97106 Toyota Production System (TPS), 12, 16, 42, 97106 TPS. See Toyota Production System (TPS) TQM. See total quality management (TQM) transition tree (TT), 42
S
S chart, 344 Salvendy, G., 331 sample, 343 sample size, 343 sampling error, 343 scatter plot, 343 Schmidt, S. R., 331 Schonoberger, R. J., 331 Schragenheim, E., 330 Sekine, K., 331 services feedback, 245 SEV. See severity (SEV) severity (SEV), 216, 218 Sharma, A., 331 sigma level, 344 Sincich, T., 330 Six Sigma, 1718, 2627, 37, 4552, 106110, 112, 113, 150161, 257 application of tools, 222 methodology, 157161 metric, 151157 versus iTLs, 196, 259266 Sloan, Alfred, 3, 58, 17, 73, 83, 91
352
Index
transportation, 133 Triola, M. F., 331 trust, building, 7778 TT. See transition tree two-level designs, 345
volumes, production, 9 VOP. See voice of the process (VOP) Vorantim case study, 318325
W
Wallace Company, 28 Wantuck, K. A., 332 waste, eliminating sources, 211221 Way, M., 332 WCE. See work cycle efciency (WCE) Welch, J., 332 Welch, S., 332 Wheat, B., 330, 332 Whitcomb, P. J., 329 Womack, J. P., 332 work cycle efciency (WCE), 131 workow transportation logistics, 138 Wu, Y., 331
U
UAW. See United Auto Workers (UAW) UDE. See undesirable effects (UDE) Umble, M. M., 331 undesirable effects (UDE), 41 United Auto Workers (UAW), 91
V
V networks, 6970, 273278 validate phase, 165166 validity, measurement system, 225227 value, 345 value added, 33, 130 value ow, 134142 value specication, 130132 value stream, 132134, 345 valve assembly case study, 306314 variance components, 345346 variation, 346 VOC. See voice of the customer (VOC) voice of the customer (VOC), 125 voice of the process (VOP), 125
X
X chart, 346 X-bar-R chart, 346 X-bar-S chart, 346
Y
Yang, K., 332 yield, 346
About the Authors

Dr. Reza (Russ) M. Pirasteh is founder of iTLS-ISO Group. He has held executive, staff, and line positions and has 25 years of solid experience in implementation of continuous improvement systems in manufacturing and transactional environments. He has earned a Ph.D. in Engineering, an MBA in Industrial Management, a BS in Industrial Engineering, and a PMP (PMI). He is also a Certied Lean Six Sigma Master Black Belt and a Certied Lean Master. He has formulated iTLS to ll the gaps among CPI methodologies he has experienced. Reza has published numerous articles and conducted lectures for APICS, IIE, TOC-ICO, Weber State University, UTA, OSU, and IndustryWeek. He is a member of APICS, ASQ, IIE, and PMI.
Robert E. Fox is a founder of The Goldratt Institute, The TOC Center, Inc., and Viable Vision LLC. He earned an MS in Industrial Administration from Carnegie Mellon and a BS in Engineering from the University of Notre Dame. His has extensive industrial and consulting experience and has served as Vice President of Booz & Co. and President of Tyndale, Inc. He authored The Race and The Theory of Constraints Journal. In honor of his 50 years of contribution to organizational improvement, the Fox Award was established to honor organizations and individuals who have demonstrated excellence. Steven Covey and Peter Senge have been recipients of a lifetime Fox Award.
353
Belong to the Quality Community!

Established in 1946, ASQ is a global community of quality experts in all elds and industries. ASQ is dedicated to the promotion and advancement of quality tools, principles, and practices in the workplace and in the community. The Society also serves as an advocate for quality. Its members have informed and advised the U.S. Congress, government agencies, state legislatures, and other groups and individuals worldwide on quality-related topics.
ASQ is
More than 90,000 individuals and 700 companies in more than 100 countries The worlds largest organization dedicated to promoting quality A community of professionals striving to bring quality to their work and their lives The administrator of the Malcolm Baldrige National Quality Award A supporter of quality in all sectors including manufacturing, service, healthcare, government, and education YOU
Vision
By making quality a global priority, an organizational imperative, and a personal ethic, ASQ becomes the community of choice for everyone who seeks quality technology, concepts, or tools to improve themselves and their world.
Visit www.asq.org for more information.
ASQ Membership
Research shows that people who join associations experience increased job satisfaction, earn more, and are generally happier*. ASQ membership can help you achieve this while providing the tools you need to be successful in your industry and to distinguish yourself from your competition. So why wouldnt you want to be a part of ASQ?
Solutions
Find answers to all your quality problems, big and small, with ASQs Knowledge Center, mentoring program, various e-newsletters, Quality Progress magazine, and industryspecic products.
Networking
Have the opportunity to meet, communicate, and collaborate with your peers within the quality community through conferences and local ASQ section meetings, ASQ forums or divisions, ASQ Communities of Quality discussion boards, and more.
Access to Information
Learn classic and current quality principles and theories in ASQs Quality Information Center (QIC), ASQ Weekly e-newsletter, and product offerings.
Professional Development
Access a wide variety of professional development tools such as books, training, and certications at a discounted price. Also, ASQ certications and the ASQ Career Center help enhance your quality knowledge and take your career to the next level.
Advocacy Programs
ASQ helps create a better community, government, and world through initiatives that include social responsibility, Washington advocacy, and Community Good Works.
Visit www.asq.org/membership for more information on ASQ membership.

*2008, The William E. Smith Institute for Association Research
ASQ Certication
ASQ certication is formal recognition by ASQ that an individual has demonstrated a prociency within, and comprehension of, a specied body of knowledge at a point in time. Nearly 150,000 certications have been issued. ASQ has members in more than 100 countries, in all industries, and in all cultures. ASQ certication is internationally accepted and recognized.
Quality is a global concept. It spans borders, cultures, and languages. No matter what country your customers live in or what language they speak, they demand quality products and services. You and your organization also benet from quality tools and practices. Acquire the knowledge to position yourself and your organization ahead of your competition.
Certications Include
Biomedical Auditor CBA Calibration Technician CCT HACCP Auditor CHA Pharmaceutical GMP Professional CPGP Quality Inspector CQI Quality Auditor CQA Quality Engineer CQE Quality Improvement Associate CQIA Quality Technician CQT Quality Process Analyst CQPA Reliability Engineer CRE Six Sigma Black Belt CSSBB Six Sigma Green Belt CSSGB Software Quality Engineer CSQE Manager of Quality/Organizational Excellence CMQ/OE
Benets to the Individual

New skills gained and prociency upgraded Investment in your career Mark of technical excellence Assurance that you are current with emerging technologies Discriminator in the marketplace Certied professionals earn more than their uncertied counterparts Certication is endorsed by more than 125 companies
Benets to the Organization

Investment in the companys future Certied individuals can perfect and share new techniques in the workplace Certied staff are knowledgeable and able to assure product and service quality
Visit www.asq.org/certication to apply today!
Self-paced Online Programs

These online programs allow you to work at your own pace while obtaining the quality knowledge you need. Access them whenever it is convenient for you, accommodating your schedule. Some Training Topics Include
ASQ Training
Classroom-based Training
ASQ offers training in a traditional classroom setting on a variety of topics. Our instructors are quality experts and lead courses that range from one day to four weeks, in several different cities. Classroom-based training is designed to improve quality and your organizations bottom line. Benet from quality experts; from comprehensive, cutting-edge information; and from peers eager to share their experiences.
Auditing Basic Quality Engineering Education Healthcare Government Food Safety ISO Leadership Lean Quality Management Reliability Six Sigma Social Responsibility
Web-based Training
Virtual Courses
ASQs virtual courses provide the same expert instructors, course materials, interaction with other students, and ability to earn CEUs and RUs as our classroom-based training, without the hassle and expenses of travel. Learn in the comfort of your own home or workplace. All you need is a computer with Internet access and a telephone.
Visit www.asq.org/training for more information.

Profitability With No Boundaries

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Profitability With No Boundaries

Uploaded by

Copyright:

Available Formats

Protability with No Boundaries

Protability with No Boundaries

Focus Reduce Waste Contain Variability

Reza (Russ) M. Pirasteh Robert E. Fox

ASQ Quality Press Milwaukee, Wisconsin

Protability with No Boundaries

Protability with No Boundaries

Figures and Tables

Kanban system. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102

Protability with No Boundaries

Figures and Tables

Protability with No Boundaries

Figures and Tables

Protability with No Boundaries

Part I: Leadership Summary

Chapter 1: Productivity, Growth, and Prosperity

Part I: Leadership Summary

Chapter 1: Productivity, Growth, and Prosperity

Part I: Leadership Summary

Chapter 1: Productivity, Growth, and Prosperity

Part I: Leadership Summary

Chapter 1: Productivity, Growth, and Prosperity

Part I: Leadership Summary

Chapter 1: Productivity, Growth, and Prosperity

Part I: Leadership Summary

Chapter 1: Productivity, Growth, and Prosperity

Part I: Leadership Summary

Chapter 1: Productivity, Growth, and Prosperity

iTLSA FOURTH WAVE

Part I: Leadership Summary

Chapter 1: Productivity, Growth, and Prosperity

Part I: Leadership Summary

Chapter 1: Productivity, Growth, and Prosperity

Part I: Leadership Summary

Chapter 1: Productivity, Growth, and Prosperity

Part I: Leadership Summary

KIV. See key input variable (KIV) Kubiak, T. M., 329

About the Authors

Belong to the Quality Community!

Visit www.asq.org for more information.

Visit www.asq.org/membership for more information on ASQ membership.

Benets to the Individual

Benets to the Organization

Visit www.asq.org/certication to apply today!

Self-paced Online Programs

Visit www.asq.org/training for more information.

You might also like