Project Management - Critical Chain Challenged! I

A response to a recent article in the GPM (The German Association for Project Management) contain the following reservations in relation to Critical Chain:

1. "Critical Chain proponents claim that projects are shortened by an average of 25% and that the project throughput is significantly increased. By my understanding of the logic of project management both methods will have about the same Throughput." (I guess the author of the response means the critical path and the critical chain methods result in the same throughput.)
   
2. "The author of the blog entry claims that many Critical Chain users are unwilling to report their success - since it represents a competitive advantage. How can the effectiveness of a method be proven if users are unwilling to report and describe their successes. Or is it simply so that Critical Chain des not have any success?"

Does Critical Chain Shorten Projects?

There are 2 ways to convince yourself of the likelihood that Critical Chain does actually cause projects to be significantly shorter than other methods.

1. Perform a thought experiment. Test the logic of Critical Chain in your mind. Based on what you know about single and multi- project environments build up the logic that either disproves or proves whether or not the Critical Chain method will be successful. If you choose this method you will have to build the cause and effect logic that leads to the correct conclusion. To ensure a correct conclusion every step in the cause and effect chain(s) must be checked using the categories of legitimate reservations. Not that difficult a task, but one that you must validate with colleagues, both those familiar with project management and others that are not.
2. You can evaluate the simple Critical Chain solutions that are supposed to achieve the spectacular results claimed - they are risk free since the actual work does not change; just the organization of that work.
   • Critical Chain cuts task times in half and places half of what was cut at the end as a project buffer. So the plan is 75% of what you started with - which proves nothing about project execution. The action places an aggregated project buffer at the end of the Critical Chain instead of spreading it over all the tasks (Side paths are handled in the same way but do NOT add to the project buffer.) The actual work we need to do is not reduced. What we have is a buffer at the end of the project plan that is to be used to give us early warning that trouble is brewing in the project - if buffer consumption is greater than the rate of project completion we are heading for trouble.
     
     Why can we cut task times in half and the live with only half the buffer aggregated at the end?
     
     The assumption Goldratt made was that we all include a significant amount of safety in every task - because every resource in a project wants to be seen as reliable. Since the time a task will take does not follow a normal (Gaussian) distribution - the distribution is skewed significantly to the right (statistics of repetitive actual projects show this well). The amount of safety for say 90% certainty of completing a task on time is very high - probably even more than the amount cut using Goldratt's rules. According to Goldratt's assumption we have plenty of safety, but we find ways to waste it. Putting the buffer at the end puts that safety under the control of the project manager so that any gains made in one task can help another in trouble. (Delays are still passed on, but task time gains are now also passed on - in very many of current and historical cases you  know about most tasks were finished on time - but rarely early (more than half should be early). If tasks are rarely delivered early, then we must be wasting time by delivering on time instead of when we actually finished our task … early. (If we make task time efforts that are relatively certain to finish on time (before implementing Critical Chain), then it follows that more than 50% of the time a task should finish early. The fact the many tasks do not helps prove that time allotted to tasks is often wasted.
     
     Try it … not much can go wrong and your information about the project is improved because of monitoring the buffer. Think about the risk is zero … at worst the project will take the same time as before.
   • When Critical Chain is introduced in an environment one of the first actions is to freeze at least 25% of all projects - stop all work on these projects. The impact of this action is to seemingly delay some projects in favour of others - so a good prioritization is essential. The further impact will be that resources will  focus their efforts better - they will no longer be pushed to switch tasks as often. Multi-tasking will reduce significantly and the flow of projects will increase. This is not so easy to prove, but professor John D. Little (of MIT) did just that. His proof  known as Little's Law. You can find his proof on the internet … but for most of us understanding the math it is not easy.
     
     Another way to show the impact of freezing 25% or more projects is to use simulations. There are several that could be used including the bead simulation,  the confetti factory and the columns of numbers. At least some of these simulations are explained somewhere on the web. Simulations are a simplification of reality, nevertheless they may convince you enough to at least try the freeze tactic.
     
     What is the risk with freeze? Customers whose projects have been frozen for a time may complain initially. However, after doing the simulations you may well realize that even if a client must wait now, he will still get his project earlier than otherwise. Projects will complete much sooner (those not frozen) and the frozen ones have an excellent chance of finishing earlier than they otherwise would. Time lost due to multi-tasking is recuperated and ensures even the frozen projects complete earlier than they otherwise would. Risk is low, but you must explain to clients what  you are doing and why!
     
     (As projects complete, you can defrost a corresponding amount. Workload on resources should remain about constant … or be lowered further if multitasking is still very high.)
3. Get references from successful implementations. I am certain you can find these in several place - Critical Chain software suppliers, Critical Chain consultants, Academia and the TOCICO. However, every project environment will be different from yours so even when you find the success stories you will still need to check the logic, check your paradigms and in the end check out the methodology on real projects.

When we were young … Baie Comeau, Quebec, 1953.
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Yield (or Scrap) Targets

To improve yield or reduce scrap is on the face of it a good thing. But what could be the consequences?

Corporate Policy

The corporation, a multi-billion corporation, requested their internal consultants to calculate what yield (or scrap) was costing the company. A 1 billion€ corporation with materials costs of 50% of turnover and a 85% materials yield could save 75m€ if 100% yield were achieved. Every %age point yield improvement would add 5m€ to the bottom line and increase return on sales  .5%. Not a bad result if profits are at about 10% of sales.

So, the corporation decides that all factories should improve their yield by 4 per cent in the next forecast period (next year).

Polymer Factory

The polymer factory of this corporation received the dictate from corporate and wondered how they would be able to meet the targets set by management. It turns out that the majority of polymer produced by this factory is one of 3 colours – white, black or natural. These 3 products already have very high yield or low scrap rates – not much was possible here. However a sizeable part of production was for polymer pigmented in many of the colours of the rainbow. Each of these colours was produced in small quantities and therefore had correspondingly low yields and high scrap rates. Maybe the solution lies here – improving the yield of all these small volume products would allow this factory to achieve their target. But how could it be done?

The machines of the factory are all sized for the three high volume products. These machines, while used to produce colours are not suited for that job. Set-up losses are simply too high. What the factory needed was small machines for small production runs. However because funds for investment were not available the factory could not invest in such machines.

Factory management was in a real bind – with the available equipment and given the product mix they had to produce yield improvements were impossible. At the same time not to achieve improvements was also not an option.

The Factory’s Solution

The factory’s purchasing people had already developed a series of suppliers; as a safety valve should demand exceed capability. The solution was therefore simple. Since these potential suppliers all had smaller equipment production of colours was outsourced to them. The yield targets were achieved, BUT… The added outsourcing cost outweighed the yield savings by about 1m€/year.

The factory could not reduce their operating expenses so their operators were standing idle more often – when colours would have been produced. The suppliers charged for their work – since a small machine takes as many operators as a large one, and since these suppliers want to make money the price for the outsourced production was high – therefore the negative impact.

What are the ugly policies at work here?

When I was young!!!

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TOC4U-Focus: Pharma under Pressure

TOC4U-Focus: Pharma under Pressure: The FT of today (couple of weeks ago now) published an article about many of the Worlds leading Pharmaceutical companies and their success i...

Pharma under Pressure

The FT of today (couple of weeks ago now) published an article about many of the Worlds leading Pharmaceutical companies and their success in R&D. It turns out that all but one of the companies reviewed have a pipeline with an expected value less than their investment in R&D. All of them are in need – they all must improve the productivity of their R&D. The approach taken seems to be cost and risk reduction through outsourcing. Is this really a solution?Could the solution be to question common practice – if what we do is faulty there might be a chance. There might be a chance much more powerful than the cost and risk reduction described in the article.

Does Outsourcing Lower Cost?

It depends! Most companies have a cost accounting that allocates overheads to  their R&D operations (overheads are allocated to practically all functions). When they outsource they may be able to reduce direct expenses, but in most cases overheads remain – they are simply spread over the other functions. On top of this the companies outsourced to all want to make a profit that must be paid for and they need management – someone to control what they are doing.It feels as though no or very minimal savings can be made – no matter how the actions might be reported.

Does Outsourcing Reduce Risk?

Well maybe – but only to the extent that risk is transferred to the company doing the actual work. The supplier’s risk is actually higher since he will have fewer developments (I assume) to spread their risk across. Major companies plan to simply transfer this risk to others and wash their hands of it. Well maybe not quite – it seems outsourcing brings risk with it –does the new supplier, who probably needs the business have the necessary relevant competency? If we squeeze the supplier too much, will he survive? If a supplier goes under who will finish the project?

Might there be a Better Way?

Project performance is notoriously poor in most, if not all, project environments. Even project environments that apparently do a good job (they deliver approximately on time) still take too long and cost too much. It is not the people, they are doing their best, given the situation. The bottom line is that project organisations are not delivering enough value the business needs. They take too long for the economic viability of the business. No wonder management seeks to reduce R&D cost. Reducing cost, though, does not solve the problem. It ensures the company will develop less since capacity is now less. Cost reduction cannot be the way. But, is there a better way?A better way would be a more effective project organisation. One that can reliably deliver more projects, reliably and more quickly is the magic we need. With the value of 1 extra day’s sales being (in Pharma) huge such a solution, if it is at all possible would bring enormous value.How could this dream be realized? Our people are already all working to their limit; so how much more effective can we become? If we want to improve significantly we must assume that more projects, reliably on time and more quickly is possible – our job is to find out how to do it!

Common Practice?

If Pharma (or any project environment) wants to improve then common practice must be questioned. Improvement can only be made through changes (I make the assumption that people will have optimized the present way of working already – so we cannot expect much improvement by simply doing what we have always done better. We must question today’s common practice, rules, policies and behaviours if we want to find the key.

Test the following statements – are they at least partially true?

Work in Process.

• A resource standing idle is a major waste. If some is not working make sure we give him or her something to do.
• Employees believe they must always be busy – otherwise their job may be in danger.

Task and Project Time Estimates

• Project task timings and project timings are estimated for management approval.
• There is pressure from management to deliver projects sooner.
• Once task and project timings are determined they become commitments – management measures project teams against these ‘commitments’. Estimates (subject to considerable uncertainty) are transformed into fixed commitments.
• Resources know that their estimates will be under pressure (to be cut) and their estimates will be transformed into commitments.
• Resources include enough time (safety buffers) to ensure their ‘commitments’ can be met – even after cuts.
• Because of points 3-7 here is a lot of safety time in all projects.
• Since most projects still take even more time than estimated, project teams must be wasting the time they have in some way … otherwise all projects should be delivered on time or earlier. At least this assumption must be true if an improvement is to be found.

Full Kit

• Since there is pressure for all resources to be busy working ‘all the time’ then tasks and projects are often started without ‘Full Kit’ – without all materials, information, authorisations etc. being available.
• Since there is pressure to finish as soon as possible projects are often started without ‘Full Kit’

If these statements are true, then on the one hand there will be a lot of work in process and all project plans must have plenty of safety – but its wasted.

Work in Process (WIP)

Professor John Little (of MIT) proved that the more WIP slows down your throughput. “The more patients in the waiting room, the longer the waiting time.” The same happens with projects – the more projects underway, the longer they will all take. All because resources are ‘forced’ to divide their time among all projects – all project managers want their elephant (project) to get through the gate ASAP. And yet we all know that our herd of elephants will get through the gate much quicker in single file – each elephant hold the tail of the elephant in front with his trunk!Work in process increases because there is always plenty of work available. Because it’s available it starts to get done slowing down the overall process. Some tasks or projects end up being late aided by Murphy (uncertainty) – Murphy will never die! The delayed tasks/projects cause projects to be released as soon as possible aggravating the situation. We have a negative spiral.Multi-tasking is part of this negative spiral. Generally speaking we know that multitasking is not a good idea, but we are not aware of how devastating the effect is. Simple experiments show that 50-100% lost capability is definitely in the realms of the possible or probable. Organisations that have been able to ban ‘bad multitasking’ have seen their capability jump by 50% or more.To reduce Work in Process requires just a very simple tactic – prioritize your projects and freeze the last 25 – 50% of the list. Flow, the number of projects completed per period, will immediately increase dramatically. Pharma companies may want to wait with implementing the tactic in order to put in place the proper formal process and maximize their benefits.

Task and Project Time Estimates

The 7 points above describe common practice and resources’ behaviour in order to protect themselves. The fact remains that every task will have significant safety in it that will be wasted – a resource will not finish early (certainly not by much) because he cannot admit to sandbagging his task times. This behaviour will even lead to late tasks (and projects) because when Murphy does attack (always in the worst possible moment) there will be too little task time left to recover.Why not remove safety from all tasks and bundle it at the end of the project – the safety buffer becomes the project manager’s and is used to protect the project and NOT the tasks. A late task is immaterial, it’s the project that counts. It is worth remembering that statistically we need less safety buffer if we bundle it in one place – at the end!

Full Kit

The pressures to start ASAP cause tasks and projects to start with inadequate preparation. Mountaineers do not climb Everest without ensuring all necessary authorisations; necessary equipment, maps etc. are in their kit. It would be dangerous to NOT have Full Kit. If mountaineers won’t start a climb without Full Kit why do we do it in projects? Its because of management and business pressures.Missing Full Kit is a source of rework, multi-tasking, poor quality and lots of lost time. Full Kit is an extremely simple concept that has been forgotten because the physical damage of an early start is so low … or its ‘invisible’ to us.To implement Full Kit is easy – just decide where it makes sense and make someone responsible for it.

Pharma Companies

They are no different from anyone else. Projects in this industry take much longer than in most others, so the benefit of 25% shorter projects will be even greater – probably can be counted in the many millions. All it takes is to decide to question common practice and start the process of implementation. We call the methodology Critical Chain – it is the way to manage projects in planning and during execution.The potential is surely there!

 

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Theory of Constraints - What is this thing called the Theory of Constraints?

Theory of Constraints

“There is Nothing as Practical as a Good Theory” – Kurt Lewin, 1952

What is the Theory of Constraints?

Focus! The core of the Theory of Constraints (TOC) is to focus correctly, on those few critical things that prevent your organization from achieving more of your goal.

In fact, one can identify a goal and two necessary conditions. The goal might be to make money now and more in the future. To do that a business must satisfy their clients* sufficiently (now and in the future) and at the same time their employees must also be sufficiently satisfied (now and in the future). Any one of these three can be the goal; the other two will always be necessary conditions that must be fulfilled!

If you look around your company there are many, many things that can be improved. Organisations use the Theory of Constraints to find which of the possible improvement activities will have the greatest impact on their chosen bottom line. Since Eli Goldratt’s first book ‘The Goal’ TOC has been used to make very significant improvements in many different areas, from production to health care, from project management to distribution, marketing and sales and many more.

Organizations, even those in deep (financial) difficulties find it very difficult to focus their energies on what really counts. Managers and people act but base their actions on erroneous assumptions or paradigms – will these actions really have an impact on the bottom line. A lot of good work gets done, but too little of the effort finds its way to a significant bottom line effect.

To focus an organisation is not easy. Organisations are broken down into departments or divisions and every one of these departments has a target to improve – sales to increase revenues, production to minimize cost (and investment) etc. Management’s working assumption seems to be - if every part of the company is optimal, then the entire organisation will also be optimal. This is never so. An action by the sales organisation can very easily disrupt the factory’s efforts to minimize cost and inventories. Actions in production and the supply chain can easily cancel good sales efforts.

Optimizing all the parts does not result in a global optimum because a business lives in a World of high uncertainty coupled with many dependent events necessary to produce a product or service. The two factors ensure a local optimum can only be achieved in one (or a very few) place(s). Focus must determine where this place is and how it should be exploited.

This leads to the Five Focusing Steps of TOC.

1. Identify the constraint. In the economic environment of 2009 it is quite easy to determine that there is not enough demand from our markets. Businesses need to sell more to be profitable and to have satisfied employees. In many businesses there is something blocking clients from buying more. That something could be customer demand, but it can also be our company not doing things it should be doing or doing things it should not be doing. It is too easy to place the blame on the financial crisis.

2. Decide how to exploit the constraint. This simply asks the question – ‘what should we do in order to maximize the constraint’s performance?’ In today’s World, what would cause clients to buy much more from our company? To what should we change our offering so that our clients (and potential clients) buy much more from us? To lower prices is not the answer!

3. Subordinate everything else to the above decision. This is a difficult step. It says that all resources other than the constraining resource must subordinate (often to sub-optimize their operations) in order to get the absolutely maximum from the constraint. If every department is charged with optimizing their part, then other departments cannot support the constraint properly. The business as a whole will suffer, and consequently so will employees and clients.

4. Elevate the constraint. If the first three steps have been successfully implemented the organisation may find that the constraint has still not been removed. If this is the case, then the time has come to expand the constraint’s capacity. These first four steps help prevent unnecessary investment and when an investment is made it will be done in the correct place.

5. Go back to step 1. BUT do not let your own inertia become the system’s constraint!

The Mafia (or Un-Refusable) Offer

In most industries all competitors are more or less equal – products and service are so equal that significant market share swings do not happen – at least not very often**. Since many industries are well established there is also relatively little market growth. The only way for a business to grow rapidly and at a significantly higher rate than its competitors is through some sort of decisive competitive advantage and therefore market share gains.

While a fantastic new product is always possible, in many industries these are unusual and if they are possible they take a long time to develop and many times they can also easily be emulated. Fortunately products are not everything your clients desire or need. Clients have business problems of their own and, if your offering can solve or significantly reduce your client’s key business problems, then it is possible to achieve a decisive competitive advantage.

A Mafia Offer must meet the following criteria to succeed:

1. The market must perceive that the value of the company’s products and services (the offering) are sufficiently high.
2. To be sufficiently high the perceived value of the company’s offering must be much higher than that of any competitor’s offering.
3. The actions taken to achieve the necessary advantage must be difficult for competitors to copy.
4. The targeted market(s) must be far larger than the company’s capacity.

This seems to be a very tall order – something almost impossible to achieve. However tools (logical cause-effect-cause analysis) exist to analyse markets in order to discover what a supplier could change to achieve an offering that fulfils the above four points. Generic Mafia Offer templates have been developed and implemented for some typical business issues as product availability, shorter reliable lead-times and others. These have to be adapted to specific environments.

Examples of possible Mafia Offers:

Product availability: Clients want a product when they need it - immediately. Distributors and clients often have to deal with unreliable supply because their own forecasts are poor, replenishment lead-times are (often) too long and suppliers are often not reliable enough. To secure supply, distributors and clients hold too much stock – their investment in materials and components is too high and from time to time they still cannot get what they need.

Would distributors and clients buy more from a company if products were always available when needed? If the supplier guarantees availability with a penalty and he lives by his promise wouldn’t clients prefer him to others? If penalties were high enough, would competitors dare to copy the offering?

New Product Development: Most businesses develop new products continuously – technologies advance. If a business achieves the capability to deliver more new developments in a shorter space of time to much more reliable due dates and without having to add additional resources***  - would such a company gain a significant advantage over its competitors? There are an increasing number of companies achieving such an advantage.

These are just two (unsubstantiated) examples that could lead to a significant competitive advantage. There are more and probably many others yet to be developed

Why are these Scenarios Possible?

We are all programmed to believe that, “A resource standing idle is a major waste.” If a resource is not working, a manager will make sure that it has something to do. Employees also feel the same pressure – with little to do they feel they may not be needed and look for more work. There is the added pressure of, ‘the sooner we start, the sooner we will finish’. Many things are started far too early resulting in significant traffic jams in production and project environments.

Little’s Law****  proved that the flow of goods is much faster when there is LESS work in process (WIP). Our experience tells us that with less work in process, a factory will get shorter lead times and is able to produce at least as much as it did with high amounts of WIP. In many factories one can easily cut lead-times in half by cutting WIP by the same amount. Cutting lead-times can lead to a significant competitive advantage. However the suggested change goes against common practice and is often difficult for production management to accept!

In projects the situation is not much different. Project times can be cut by 25% while due date performance increases to about 90% while any late project is much less late.

Cutting work in process is just one simple tactic. There are several more that enhance these results. Several of them fly in the face of common practice*****  – but they are just common sense.

Why are such Solutions Difficult to Copy?

The simple explanation is that the changes necessary, while they are very much common sense, go almost 100% in the opposite direction to common practice.

It is usually very difficult for a production manager to accept to have some of his resources standing idle. It goes so much against the grain that competitors will not copy changes such as those suggested above – at least it will take quite a long time until they do. Offering high enough penalties increases the hurdle for competitors.

The Impact

The current economic crisis has forced many companies to resort to short workweeks. This practice is a transfer of funds from employees and the population as a whole to support companies in difficulty. The cost of such operations must be repaid sometime in the future and will be borne by the country, through higher taxes (or inflation) or by postponing other needed expenditures – for education, infrastructure, healthcare etc.

If what has been indicated is true, then companies could weather the storm of many economic crises without having to resort to short workweeks or the reduction of their workforce. They will have prepared for such an event by their focus on those few but essential things rather than trying to improve everything. A company can soften the blow by finding those effective strategies and tactics that give it a decisive competitive advantage.

*Clients include those to whom products are sold plus the other external stakeholders like the social, political and physical environment.

** A competitor with a significant competitive advantage must gain market share rapidly – at least until the other competitors have caught up.

*** And the quality of the development work does not suffer!

**** John Little is a professor at MIT, USA http://web.mit.edu/sgraves/www/papers/Little's Law-Published.pdf

*****  Lean and 6-sigma are two commonly used improvement methodologies. What we are proposing here is a focusing technique that together with Lean and 6-Sigma makes them far more powerful. The combination of the Theory of Constraints, Lean and 6-Sigma has been shown to be far more powerful than any one on its own.

Goldratt's book "What is This Thing Called Theory of Constraints and How Should It Be Implemented?" is available at Amazon and other bookstores.

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The Weakest Link is the Key!

More Projects – Risk Free

Intuitively we know that too many tasks or projects slow down project completion rate. We should reduce the number of active projects!
“A resource standing idle is a major waste.” Management should find enough work to keep all resources 100% busy. We should increase the number of projects until everyone is continually busy. Not only management, but also almost every employee believes this quotation. Everyone acts accordingly. We tend to increase the number of active projects.
The drive for efficiency and effectiveness prevents limiting the number of active projects. Bad multitasking is prevalent. (One company (Omron in Japan) killed or froze (stopped for a time) over 90% of active projects with only beneficial bottom line results.
What is the risk if we prioritize and then stop some lower priority projects for some time? From the perspective of business results none – things can only improve. However, the boss might discover a favourite project is not being worked on. So, simply make sure the key management projects are top of the priority list, or make sure that management prioritizes projects - which is their responsibility in the first place!
Can there be any other risk?

Bad Multitasking

Bad Multitasking occurs whenever a resource (especially a key resource) switches between tasks without completing his current task. When he returns to the original task the resource will lose time as he familiarizes himself with the stated work. The more tasks a resource switches among, the higher the percentage of valuable resource time lost. The time required for a task increases – even more for intellectually difficult tasks.
Everyone is aware of the effect. People that interrupt their reading take some time to get back into the subject whenever they interrupt. Nevertheless the pressure to keep everyone busy, the pressure to do just one more project, the pressure to show efficiency, the pressures on cost; all cause management to overload their resources to the extent that those businesses that do stop bad multitasking often get startling results – productivity can triple , lead-times can be cut to one third.



          
                   The drawing is probably not far off reality considering the following:

• The Israeli Air Force multiplied capability by 7.
• HP cameras tripled their performance. Many have has similar results.

The Cause and Effect of Bad Multitasking

Management is constantly under pressure to make their part of the business efficient and effective. There are many ways to measure efficiency, but almost all measure a resource’s time – how much of the resource’s available time is used to produce (busy working).
Workers at all levels feel the pressure to be effective and efficient. If they are not busy they seek out work. They ask for work (projects or tasks) to be released to them so that they can be “productive”.
A fact of life in every business or operating system is the existence of a constraint – a factor or resource that limits the capability of the entire organization. No matter how hard other resources work, an organization cannot produce more than whatever its constraint allows. (By producing items that do not need the limiting factor an organization can produce more, but it can also create a second limiting factor that may well disturb (and waste) the primary constraint’s capacity).
If work is released at a greater rate than the limiting factor can actually manage, then work piles up and must wait. If other projects (not using the limiting factor) are launched, then other resources become more loaded and potentially a second constraint is created.  Work also piles up there. The consequence is even more pressure on now both limiting factors to switch between jobs in order to satisfy various ‘customers’. Every switch at the limiting factor costs capacity – the company’s capacity to earn money. How much capacity is lost depends on how difficult it is to re-start (re-set-up) a job and the frequency of task switching.

Follow the arrows on the graphic on the above – beginning with “Resources are limited” and “There are always opportunities for more projects”. The arrows flow logically from high work in process to lead-time increase to project delays – delays that are accentuated by uncertainty (Murphy)! Finally the situation causes the pressure to start all projects as soon as possible (because of the erroneous belief that the sooner we start the sooner the project will be delivered. And the cycle repeats and gets worse and worse – as illustrated by the graphic below.

Consequences – The Damage

The resource, especially the capacity determining resource wastes time switching and in to set up activities when he returns to a job. The capacity lost is that of the company – either opportunities are lost or unnecessary (but costly) or resources must be added.
Switching projects delays every project – a project not worked on is not progressing and therefore (bottom line) results will be delayed. Multitasking causes tasks to complete more or less at the same time – the time it takes to complete all tasks. However, one (the most important one) could have been finished much sooner and therefore produced its benefits (profit) that much sooner. Had resources not multi-tasked, then even the last task or project would be finished much sooner.
Switching back and forth also has a detrimental impact on quality. The original plan and concept for a task is often remembered only vaguely – the resource has to “reinvent” his solution – through his frustration there is an increased risk of poor quality. Poor quality and changes in solution design can easily lead to re-work and more pressure on task time; leading to even more multitasking. We have a negative spiral that strongly amplifies the situation.
The consequence is longer project times, less business due to lead-times, higher cost per project, lost capacity and generally less job-satisfaction for employees. The size of the damage can be seen in the results of companies that did succeed to dramatically reduce bad multitasking. HP camera was able to increase new product development 3-fold while at the same time they delivered their new products 100% on time. The Israeli air force was able to improve their maintenance operation 600%.
Resources did not work any harder. The worked much more effectively because they stopped multi-tasking. Job satisfaction improved accordingly.
Imagine the impact to your bottom line through this kind of reliable speed and free capacity. Even a small part of the potential has huge impact.

Diagram of the Logic

Not only does the logical diagram show 5 negative effects, there are also 2 negative feedback loops that (powerfully) strengthen the system and its effect on a project organization. (Touch Time is the amount of time needed to complete tasks and projects.)

A Few Easy Steps

1. Prioritize all active projects according to their importance for the business as a whole.

2. Freeze at least 25% of them. In many companies 50% or more can be frozen with only beneficial effects to project speed and the number completed per period.

3. Project team members follow this rule: Once a task is started it is (almost) always finished before a new one is started.

4. No task or project is started without ‘Full Kit’ – all necessary materials and information must be available before starting.

5. Management resists pressures to start more projects. If they do, then ALL projects – even those they delayed – will be completed earlier than otherwise. There is NO risk of getting less done. The organization will deliver more and better quality work.

6. New projects are started after an active one is completed, truly completed!

7. Frozen projects are defrosted when projects are completed – 1 for 1 in terms of the load on the constraint capacity.

Technorati Tags: 6-Sigma, Continual Improvement, Cost, Critical Chain, Execution Management, Focus, Goldratt, Little's Law, Management, Multi Tasking, Product Development, Project, Project Execution, Project Management, Project Manager, Project Plan, Quality, Risk Management, Shareholder Value Add, SVA, Theory of Constraints, TOC, TQM

Learning from Experience VI

Nov 11th, 2011 Eli Schragenheim will lead a workshop on Learning from Experience. The purpose is to learn how to understand the cause and effect (the why) of disturbing and unexpected results from our actions AND, more importantly to take and apply the important lessons we learn.
The stories in these posts are all about unexpected effects that someone has experienced and that he or she could not properly understand. With Eli, we will look at such problems (bring your own!) and analyse them.
If you are interested The Workshop (in English) will be at the hotel Schiller in Olching (near Munich) followed by the TOC4U Meeting (mostly German) on Saturday Nov. 12th. You can register here: Register or call +49 6252 795 3070 if you have problems with the German registration page.

Six Sigma auf dem Rückzug! The Retreat of Six Sigma

QZ-Frage im Juli

That Six-Sigma is retreating in Germany is not surprising. But, what is the reason and what can we learn from it?
The people that launched six-sigma on the World said something very significant. The told everyone that to be successful a company’s black and green belts must accomplish many, many smaller projects. Where I used to work projects should deliver about 250’000€ each. With 100 such projects the improvements would reach 25 million Euros – to the bottom line.
The sad part was and probably still is, that it is not possible to identify the impact to the bottom line – there apparently was only a small positive impact to companies’ bottom lines. The size of the bottom line impact was insufficient to justify the huge investment and certainly not enough to motivate employees. No wonder Six-Sigma is retreating in Germany. I wonder what is happening elsewhere in the World?
The graphic below is a possible description of what is happening to Six Sigma (the green ovals represent an and – all the entities that pass through an and are required for the next logical entity. The graphic is a summary; there may be assumptions (we believe realistic) and logical ‘leaps’ (again we believe realistic).)
The graphic shows that since Six Sigma (and many other continual improvement methodologies) is not focused on the businesses limiting factor a lot of effort is wasted – at least for now. Bottom line impacts are delayed, managers are disappointed and eventually everyone moves to some other way of achieving personal targets. The effect is enhanced because there is a negative reinforcing loop (the red line) thatensures any continual improvement programme not focused on the limiting factor is certain to fail sooner or later. It is unfortunate because Six Sigma and other such methodologies have a lot to offer any business – production, project or service oriented.
What is missing is the correct focus on the limiting factor(s). In any business there are not many limiting factors at all – often-just one! If what I have just said is true, then the opportunity for success is great. The rules to follow will be something like:

1. Identify the limiting factor.
2. Decide how to exploit (get the most from; how to use the limiting factor in the best possible way) the limiting factor.
3. Subordinate everything else (the rest of the organisation, the policies, work behaviours etc.) to the decision you just made. This is not an easy thing to implement. Not easy because it means focus on one place instead of improvement everywhere.)
4. Eventually the limiting factor will be operating at its maximum capability. If it is still the limiting factor, now is the time to expand it.
5. If during a previous step the limiting factor has moved to another resource then go back to step 1 and start over. (Make sure that your own inertia become the limiting factor – when the limiting factor moves, ALL the experience you have is most likely invalid – go back to step 1.)

These 5 simple rules make Six Sigma, Lean and other improvement methodologies much more effective. The bottom line will receive a very significant boost; managers and employees get a motivation boost and reports of “Six Sigma auf Rückzug” will be replaced by the positive results achieved.

Beautiful picture from National Geographic

Instead of giving up on Six Sigma lets use a valid focusing mechanism to identify where scarce resources should focus their efforts. 

If we can learn how to do that how much more will continual improvements achieve for the bottom line?

Technorati Tags: 6-Sigma, Continual Improvement, Cost, Efficiency, Execution Management, Focus, Goldratt, KPI, Production, Project, Quality, Theory of Constraints, TOC, TQM

Learning from Experience V

Nov 11th, 2011 Eli Schragenheim will lead a workshop on Learning from Experience. The purpose is to learn how to understand the cause and effect (the why) of disturbing and unexpected results from our actions AND, more importantly to take and apply the important lessons we learn.

The stories in these posts are all about unexpected effects that someone has experienced and that he or she could not properly understand. With Eli, we will look at such problems (bring your own!) and analyse them.

If you are interested The Workshop (in English) will be at the hotel Schiller in Olching (near Munich) followed by the TOC4U Meeting (mostly German) on Saturday Nov. 12th. You can register here: Register or call +49 6252 795 3070 if you have problems with the German registration page.

 

Month End Panic

Have you experienced month-end pressure to get orders out the door? Top management puts pressure on the factory to ship and invoice as much as possible before the next month starts. It is done to meet the forecast – especially whenever month-to-date shipments are lagging behind expectations. In some businesses the month-end rush is a regular occurrence.

If shipments are slow during the first part of the month and the factory is regularly able to catch up at the end of the month something unusual must be happening. The first conclusion must be that there is enough orders available – if there is too few orders the factory could not catch up. If there is enough demand, why are factories slow at the start of a month and much faster towards the end? Can we learn something valuable from the phenomenon?

Is it just management pressure and management attention that does the trick? Management certainly influences the outcome, but factories probably have to operate quite differently tosatisfy management a month end.

At the start of a month, with little or no pressure from management, factories will work in a way that allows them to meet their efficiency targets. They will operate with big batches to minimize downtime for machine set-ups. While big batches make good-looking efficiency results, the big batches cause longer lead-times since following orders must wait until a big batch is finished. The effect slows down following orders also because future orders (even potential orders) are pulled forward – inventory of some products increases.

A batch of 1000 units takes ten times longer in a machine and will be transferred to the next machine that much later (after all making ten trips is that much more work). So, even within a big batch it takes longer for one unit to reach the shipping dock.

Big batches delay both the items within the batch and the orders that must wait while the batch is being processed. But, efficiency KPIs will apparently be good.

At month end efficiency can no longer be considered. Now the factory must ship and invoice customer orders. At this point the factory splits batches. The part of the batch with no immediate customer order associated with it must wait. The rest is pushed through the factory. Orders that can be shipped and invoiced are finished much sooner because there is no more waiting time for production orders that are not necessary yet.

Factories take a further step. Remaining batches with real (urgent) customer orders behind them are split into smaller ‘transfer’ batches. These smaller batches are transferred to the next machine as soon as they come out of the previous machine. They do not wait for the entire batch. Instead of transferring in batches of 1000, the factory transfers batches of 100 or even less. Orders are completed much more quickly – the longer the process the greater the effect.

By producing in smaller batches (only what is truly needed in the short term and by transferring partial batches from machine to machine (so-called ‘transfer batches’) factories are able to respond to management pressure and achieve the desired shipment numbers.

The question for management: Would it be better for the business as a whole to always operate according to the beginning of the month process or should the month-end process be adopted and applied all the time?

The start of the month process has long lead-times and leads to high inventories while the month-end process has short lead-times and low inventories. Could the month-end process be more stressful for employees?

What other benefits might there be if the month-end process becomes the standard?

Technorati Tags: Efficiency, Inventory, Policy, Production, Reliability, Speed, Theory of Constraints, TOC

Answer to Eli Schragenheim's Riddle

You can find the winning answer to the riddle here:

Answer to the Riddle: Can we offer perfect availability of every single item?

Learning from Experience IV

Earlier this here I posted a link to an article by Russell Ackhoff. That article is still relevant and especially so in relation to 'Learning from Experience'


Here is Russell Ackhoffs Article "A major mistake that managers make" The link is to a page in my blog, where you will find an external link.


Ackhoff's article and my various small contributions show how important learning from experience is - I hope many of you come o Munich for the workshop with Eli Schragenheim.


If you are interested The Workshop (in English) will be at the hotel Schiller in Olching (near Munich) followed by the TOC4U Meeting (mostly German) on Saturday Nov. 12th. You can register here: Register or call +49 6252 795 3070 if you have problems with the German registration page.

Learning from Experience III

Paradigms

An inappropriate paradigm will result in unfulfilled (or even over fulfilled) expectations.
In the Post “Where should we hold Stock” the organisation may have followed the following paradigms:
1. Distributors are given a good margin to sell our products – it’s only right that they invest in the correct amount of inventory to supply their customers.
2. Adding value – through cutting the rolls and sheets to customer requirements is an additional way to make more money.
3. Holding stock close to customers (at distributors) ensures a better customer service. Material availability is better; lead-times are shorter.
Unfortunately the result was quite different – not only did distributors complain about the high cost of holding inventory, but; customer service to the end client actually deteriorated. What is going on?
Maybe holding inventory centrally and cutting to size centrally is much more effective. Maybe the aggregation effect (at a central warehouse) causes less waste in added stock and makes it much easier to service the market. Maybe aggregation of demand makes demand at that level much less uncertain. The aggregation paradigm is well known in a number of areas – insurance aggregates many risks that offset each other.
Maybe the right paradigm is aggregation! Don’t many supply chains use aggregation to prepare inventory at such a point and differentiate the product when customers actually order?

It seems you should ‘watch your paradigms’!

Nov 11th,2011 Eli Schragenheim will lead a workshop on Learning from Experience. The purpose is to learn how to understand the cause and effect (the why) of disturbing and unexpected results from our actions AND, more importantly to take and apply the important lessons we learn.
The stories in these posts are all about unexpected effects that someone has experienced and that he or she could not properly understand. With Eli, we will look at such problems (bring your own!) and analyse them.
If you are interested the Workshop (in English) will be at the hotel Schiller in Olching (near Munich) followed by the TOC4U Meeting (mostly German) on Saturday Nov. 12th. You can register here: Register or call +49 6252 795 3070 if you have problems with the German registration page.


Technorati Tags: Availability, Continual Improvement, Distribution, Efficiency, Focus, Goldratt, Inventory, Make to Stock, Replenishment, Risk Management, Shareholder Value Add, Strategy and Tactics, SVA, Theory of Constraints, TOC, Value Chain

Below is the text from an email I received in the 90-ies (as a copy). What Chandrashekhar explains is still valid. Anyway, I thought I would post this after I found the email again by accident - especially in relation to my last post "Isn't It Obvious (part of the Learning from Experience series.)

CHICKENS

Hi Luis This is Chandrashekhar from India.

From the inputs what you have provided, ToC’s distribution / replenishment solution is the best solution. To design the solution completely you need to have past data.  I have implemented replenishment solution in the distribution of a Chicken (Shelf life of 24 hrs only).

The case was:

• The supplier had one factory from where he was supplying to more than 200 outlets in the city. All outlets were giving their next day’s requirement by afternoon 3.00 • Live birds then transported to factory by 10.00 in night.• Factory used to start the production late night and complete it by morning 6.00. the finished product was delivered to all outlets in the morning by 10.00• If a shop sells less than what he has ordered, the extra chicken is wasted.• If a shop sells more than he ordered, there is stock out and sale is lost.  17% of the rejections were taking place due to this. Sale lost – no data available

Solution:

• Instead of one delivery, now we are making two deliveries, one in morning, second in evening. • In first delivery (Morning 10.00) we supply 40% of the forecast or ordered quantity by the retailer.• At 3.00 they call up all retailers and take sale figures.
• If sale is less than forecasted, then quantity in second delivery is reduced • If sale is more than forecasted, extra quantity is supplied in second delivery.

This reduced the rejection (chicken coming back from retailers) from 17% to 6%. On one side the rejections came down, i.e. the loss of throughput is arrested on other side the sale improved by 11% i.e. Throughput increased. I hope this example will help you in developing solution for your problem.

 

 

Technorati Tags: Availability, Consumer, Cost Accounting, Distribution, Efficiency, Goldratt, Inventory, Inventory Management, Replenishment, Retail, Sales, Shareholder Value Add, Strategy and Tactics, Supply Chain, SVA, Theory of Constraints, TOC, Value Chain