As mentioned in a previous article, continuously finding and eliminating bottlenecks is crucial for an organization. It requires openness to improve and willingness to learn. This isn’t always easy but helps you to fulfill your corporate social responsibility to reduce wasting human capital.
The presented approach works with information as well as material flow.
Keep in mind that we are talking about human beings in this context and being the bottleneck / constraint doesn’t mean that this person is not doing a good job!
To understand how to optimize your organization, it is important to understand that the primary goal of the company is almost always to make money. So the only thing that’s really important is that you sell your products profitably as fast as possible. This is called the systems throughput.
The Main Driver Throughput
Throughput is the rate at which the system is able to produce the goods pulled by the market. Sometimes the market can be the constraint too.
Because throughput is a rate, it is always expressed as output unit of time. A unit is in most cases a product. If the goals units are measured in money, throughput will be an amount of money earned per time period per unit of product.
In the case of throughput per time period, throughput is calculated as revenues received for the period minus totally variable costs divided by the chosen time period.
In the case of throughput per unit of product, throughput is calculated as the selling price of the product minus totally variable costs per unit.
Drum-buffer-rope is a concept that bases on the assumption that there is always a constant bottleneck in the value chain (recommended books). This is used to control and optimize the throughput of the overall system. If the bottleneck is not used for controlling, work in progress builds up in the process and binds resources, which in turn costs money and decreases the overall performance.
A good methodology to follow when optimizing to reduce bottlenecks / constraints is:
STEP 1: IDENTIFY THE CONSTRAINT
This tells us where to focus the improvement efforts on. Only an improvement at the constraint makes a difference.
STEP 2: OPTIMIZE THE CONSTRAINT
Before starting to add capacity, we need to use the capacity we already have. “Optimize” means “doing everything possible to use the constraint to its fullest capacity.”
STEP 3: SUBORDINATE THE NON-CONSTRAINTS
The job of all non-constraints is to subordinate their decisions to the constraint’s needs. They should optimize for constraint (and thus system) performance, not their own individual performance, the results of which we witnessed in.
STEP 4: ELEVATE THE CONSTRAINT
Only once we’ve completed the previous steps it makes sense to add more constraint capacity, and thereby increase system performance. Because adding capacity is very expensive in terms of time and money, we do it as a last resort, not a first resort.
STEP 5: RETURN TO STEP 1
The result of the first four steps, and the reason this is a “continuous” improvement method, is that the constraint moves. This requires that you start back at the beginning, and don’t let inertia become the constraint.
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