日本TOC協会 | Japan TOC Association - Eli Schragenheim … · 2016-06-10 · Constantly strive to grow T faster than OE Using T vastly simplifies business decisions Eli Schragenheim

Eli [email protected]

About having an insight

� Some definitions of “insight”:

� an understanding of the true nature of something – merriam-webseter.com

� an understanding of relationships that sheds light on or helps solve a problem – dictionary.com

Eli Schragenheim - Supporting TOC implementations worldwide

� The ability to have a clear, deep and sometimes sudden understanding of a complicated problem or situation - Cambridge

� A suggested TOC definition:

A generic cause-and-effect branch that becomes clea r and can be applied to many different situations

8 TOC Insights

The whole is greater than the sum of its parts

ConstraintsConstraintsConstraintsConstraints


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1st Insight - Constraints



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The impact of a constraintconstraintconstraintconstraint

� A constraint is something that limits a critical FLOW

� I claim there are two critical flows in every organization:

○ The current value flow – representing the short-term value delivery

○ The future initiatives to improve the flow – the long-term value

� If you draw more of the constraint then you get more flow

Constraints


� If you draw more of the constraint then you get more flow

� If you draw less of the constraint then the flow is weaker

� A related insight: Organization can handle only very few constraints – usually just one

� When two or more constraints interact the flow becomes unstable

� The five focusing steps outline the way to draw the most of the constraint(s)

Sub-insights from the ‘constraintconstraintconstraintconstraint’

� Internal versus external constraints:

� When the constraint lies in the market demand :

○ Any additional market is welcome

� When there is an internal capacity constraint :

○ Every additional activity should be carefully checked according to the

Constraints


○ Every additional activity should be carefully checked according to the capacity constraint

○ The product-mix needs to be constantly checked to ensure good exploitation of the constraint

○ The activities of all the other resources are closely monitored to support the constraint – subordination to the constraint

○ Possible ways of elevation of the constraint have to be constantly considered

2nd insight - Buffers



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Visible buffers Visible buffers Visible buffers Visible buffers as part of the planning

Most plans do not consider the impact of uncertaint y!

Forecasts are based on the expected average

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Forecasts are based on the expected average

Planning is based on forecasts

Visible buffers Visible buffers Visible buffers Visible buffers as part of the planning

� How should we protect the plan from uncertainty?

� A buffer is a protection mechanism against common and expected uncertainty!

� Most plans do NOT include clear visible buffers!

○ Visible means it is formally part of the plan so everybody involved is aware of the buffer, why it is in place and how to use it

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aware of the buffer, why it is in place and how to use it

� People are aware that uncertainty impacts their performance

○ So, they fear from unjust judgment on their performance

○ So, they manipulate the sales forecasts to protect themselves

○ Two resulting damages:

� The information is distorted

� Employees limit their performance from achieving the very best in order not to raise expectations for their future performance

More about visible buffers

� The TOC buffers are placed only at critical points :

� Protecting the objective of the planning from regular uncertainty

� Protecting the key points in the planning where any deviation might disrupt the whole planning

� By including buffers within the planning we achieve

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� By including buffers within the planning we achieve the following:

� Gaining high certainty that the plan is doable and the objectives would be reached

� Getting a good idea of the potential cost, capacity and revenues

○ Less fear in the organization!

Buffer types

� TOC uses time-buffers in manufacturing and in projects

� Stock buffers for providing excellent availability

� More buffer types might be required:

� Capacity buffers

○ Maintaining capacity beyond the average prediction of how much

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○ Maintaining capacity beyond the average prediction of how much capacity we need to ensure meeting the commitments to the market

� For instance, having more manpower than seem necessary

� Money buffers – to ensure that liquidity would never become a constraint

� Capability buffers – having more capabilities than what is necessary right now to ensure being able to handle new opportunities

3rd Insight – Buffer management



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Buffer ManagementBuffer ManagementBuffer ManagementBuffer Management

� The insight:

Once a buffer is part of the planning it is possible to monitor the actual state of the buffer

� Deducing whether special efforts are required and whether future planning should change the size of the buffer


planning should change the size of the buffer

� I’m not aware of any similar insight!

� This insight sets the relationships between planning and execution

� The plan includes all the absolutely necessary ingredients for the execution to achieve the planning objectives

� Execution follows the priorities based on buffer management

The colors dictated by Buffer Management

� Buffer management, watching the current status of a buffer, distinguishing between three categories:

Green < Yellow < Red

� Green is: there is a lot of buffer ahead

� Yellow: It is about right


� Yellow: It is about right

� Red: Not enough buffer left – it is an “almost late” or “almost short” state that requires special efforts

� There are also two exception colors:

○ Black means being late or short – when the buffer fails to protect

○ Light-Blue – overstock or early release of order: too much buffer !

4th Insight – Throughput



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ThroughputThroughputThroughputThroughput

� Throughput (T) is the added value created by the organization

� For organization that is for-profit:

� Revenues reflect the value to the customers

� The truly-variable-costs (TVC) reflect money paid to other parties


� The truly-variable-costs (TVC) reflect money paid to other parties per unit of product or service sold

○ TVC includes only expenses that occur every time one unit is sold

� T = Revenues minus TVC reflects the generation of added value

The TOC performance measurements

� There are two different levels of T

1. The total T generated in a period of time

○ This is the key performance measurement of the organization

2. T per specific product-unit, deal, client or market segment

○ Allowing us to check the added value from specific decisions


○ Allowing us to check the added value from specific decisions

� The money required to generate T:

� Investment (I) : the capital held by the organization

○ All the money that is stuck in assets

� Operating Expenses (OE) : the expenses that do not change with every single sale

The unique qualities of T

� Throughput highlights the absolutely necessary focus

� The generic rule is:

Constantly strive to grow T faster than OE

� Using T vastly simplifies business decisions


� Revenues minus the TVC behaves in almost linear way

� Selling a little more usually do not cause any change to OE and I

○ But, the T is increased

� OE and I are looking for very different data items than T

� Thus, looking for delta(Profit) = delta(T) and delta(OE) for a certain decision is a simpler and better way to make decisions!

5th Insight – Conflicts



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Resolving conflictsResolving conflictsResolving conflictsResolving conflicts

� Two types of conflicts:

1. An internal dilemma between two possible actions

1. To do or not to do

2. To do X or to do Y – when doing both seems impossible

2. A direct conflict between two people, two functions, or between


2. A direct conflict between two people, two functions, or between the organization and an individual

○ Each has an important need and it looks difficult, or impossible, to achieve both needs

� The usual way to resolve a conflict is a compromise

� A compromise fails to achieve all the needs in full

� We look for a superior way through deeper understanding of what the conflicting actions are about

The structure of a “cloudcloudcloudcloud”

X likes to take action A

Basic assumption: It is impossible to

The starting point: A conflict between two potential actions

The need X likes to accomplish by action A

The two needs to be accomplished

The ultimate mutual objective for


Y likes to take action B

Basic assumption: It is impossible to take both A and B

The need Y likes to accomplish by action B

objective for which BOTH needs are required

Instead of coming up with a compromise where both X and Y do not fulfill what they need, we look for a way that BOTH X and Y fully accomplish their needs!

A key strategic conflict of every organization

Offer very high variety of products or services that have demand

Appeal to as many clients you can reach

Achieve as much of the

The needs that haveTo be accomplished

The ultimate objective that requires both needs (possibly more) as necessary conditions

The conflicting actions


have demand

Offer low variety of products or services that have the highest demand

Make sure you utilize your capabilities and capacity in the best way

Achieve as much of the goal as you are able to

Finding a compromise: Offer good variety of products, but give up some products that still have a certain level of demandIs that a satisfactory solution? Both needs are not fully covered

Revealing the hidden assumptions

� The structure of the ‘cloud’ guides the user to challenge the causal linkage between the boxes

� If even one linkage can be challenged then it is possible to get the objective without any compromise!

� In order to challenge a linkage we have first to verbalize the assumptions behind it


assumptions behind it

� Let’s go back to the example and try to reveal hidden assumptions that could guide us to resolve the conflict

� Goldratt called it: “evaporate the cloud”

The key assumptions

Offer very high variety of products or services that have demand

Appeal to as many clients you can reach

Assumptions• Clients know exactly what they want and do not buy anything else• There are MANY potential products or services the company can deliver that each one of them has clear demand


that have demand

Offer low variety of products or services that have the highest demand

clients you can reach

Make sure you utilize your capabilities and capacity in the best way

Achieve as much of the goal you are able to

Assumptions• The company is internally constrained• Higher variety would load the constraint more

Challenging assumptions

� The idea is to “evaporate” the cloud by challenging one of the assumptions and by that create a possible solution

� Assumption: Clients know exactly what they want and do not buy anything else

○ Challenging the assumption: There is today too much choice to the customer who is confused, hesitant and might give up buying


customer who is confused, hesitant and might give up buying

○ This leads to a potential solution of creating a smaller, but well differentiated, product mix that appeals to all pot ential customers , while utilizing better the resources

� Assumption: The company is internally constrained

○ When this assumption is not valid then high variety still supports good utilization of the capabilities and capacities!

6th Insight – Inherent Simplicity



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Inherent Simplicity Inherent Simplicity Inherent Simplicity Inherent Simplicity and the Core ProblemCore ProblemCore ProblemCore Problem

� The key insight of TOC is:

Every human based system has to be inherently simpl e

� Simplicity means: it is possible to reasonably predict the near future performance

� We are able to identify the area where an improvement would


� We are able to identify the area where an improvement would significantly improve the performance of the whole organization

� The insight of the concept of the core problem

� The conflict that prevents the organization from improving the flow of value

○ Most organizations are limited by a flawed assumption leading to a conflict based on that assumption

7th Insight – Strategy



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StrategyStrategyStrategyStrategy: Building the Future Flow of ValueFuture Flow of ValueFuture Flow of ValueFuture Flow of Value

� TOC has been focused for many years on quick improvement of the current flow of products and services

� Limited by the market, a capacity constraint or by lack of material

� We now recognize that most organizations are blocked by flawed policies caused by the core problem


by flawed policies caused by the core problem

� Flawed policies limit the performance and challenging the flawed assumption is required to open this blockage

� Goldratt next step guides us to look into the future and create new value for potential customers

� Developing the Strategy of the organization

Gaining a Decisive Competitive Edge Decisive Competitive Edge Decisive Competitive Edge Decisive Competitive Edge (DCE)

� Definition of ‘decisive competitive edge’:

The organization delivers a highly needed and appreciated unique value to large markets, which no

competitor is currently able to deliver

� Finding an effective DCE is an ambitious, but absolutely


� Finding an effective DCE is an ambitious, but absolutely necessary, mission for every organization

� An effective DCE also means that it is difficult to quickly imitate the unique value

� Another condition is that in all other aspects the organizational performance is good enough

The role of the DCE in the Strategy

� Any Strategy has to clearly define the value delivered to clients relative to the competition

� The unique value could be:

○ A unique feature of the products that gives unique value

○ Unique feature of the delivery (reliability, fast response, perfect


○ Unique feature of the delivery (reliability, fast response, perfect availability)

○ The geographical location of the delivery process

○ Additional service like guidance of the use

○ Business rules, esthetics, brand name that ensures security etc.

� The DCE protects the organization from the full damage of the whole market going down

The S&T – the TOC format for Strategy Planning

� The Strategy and Tactic Tree (S&T) outlines what needs to be done to achieve the great future of the organization� The key objective is: everybody is aware what they need to do!� Another objective is to identify missing elements

� The basic structure is of a Tree:


Key insights concerning the S&T

� In planning the future we need to distinguish between:

� The intermediate objective (IO) – a future state

○ Explaining why we need that IO in order to achieve the top objective

○ Goldratt called such an IO “strategy ”

� The actions required to achieve the strategy (the I O)


� The actions required to achieve the strategy (the I O)

○ Explaining how those actions would truly achieve the strategy

○ These actions are called “tactic ” by Goldratt!

8th Insight – Six questions



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Assessing the value of new products/services

� The Six Questions on the value of new technology , developed by Goldratt, contain powerful insights for any new product or service

� Leading to recognize opportunities for powerful DCE

� With huge impact on Strategy


� With huge impact on Strategy

� The ‘Six Questions’ are especially effective for practical value

○ Client organizations purchase products mainly for practical needs

○ Consumers look also for other types of value

The Six Questions

1. What is the power of the new technology?

2. What current limitation or barrier does the new technology eliminate or vastly reduce?

3. What are the current usage rules, patterns and behaviors that bypass the limitation?


behaviors that bypass the limitation?

4. What rules, patterns and behaviors need to be changed to get the benefits of the new technology?

5. What is the application of the new technology that will enable the above change without causing resistance?

6. How to build, capitalize and sustain the business?

The value of a good insight

� Using an insight taken from a different environment is truly powerful

� It encourages us to look at other environments and “translate” ideas that work well there to our environment

○ The first step is to understand the cause-and-effect of the idea


○ The first step is to understand the cause-and-effect of the idea

○ Inquire how come it works in the original environment

○ Then express the idea in a generic form making it an INSIGHT

All TOC main insights, covered in this presentation , can be used in various environments and

organizations

日本TOC協会 | Japan TOC Association - Eli Schragenheim … · 2016-06-10 · Constantly strive to grow T faster than OE Using T vastly simplifies business decisions Eli Schragenheim

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