Instead of living in the “Cost World” try living in the “Throughput World.” If you are focused on the speed and amount of throughput in your business (while maintaining costs) you are assured of making more money now and in the future. Why is that? It’s because you are looking operationally and systematically at things you can do to improve throughput, which ALWAYS results in making more money.
And if you really want to do a deep dive into this area, pick up a book called “The Goal” by Eliyahu Goldratt. It will completely change your perspective about business!!
In our next article I will introduce you to a simple formula that will guarantee that any improvement actions you take will inevitably lead to an increase in throughput (profit), using the principles taught in “The Goal,”
The Goal: How to increase your company throughput…
Review time:
As I mentioned in our last article, sometimes we live in the cost world, and sometimes in the throughput world. In the end, we should be most focused on living in the throughput world.
Oh really? Yes, I’m being serious!!
Living in the throughput world implies you are focused on the quantity and speed of money traveling through your 3 main business functions.
Every business has 3 main functions:
Sales/Marketing + Operations + Finance/Admin = $Money in the bank$
Throughout does not occur until all 3 main functions are completed. We also know that every business has a constraint point in it. We know that to be true, because if there were no constraint, then throughput (or profit) would be infinite. (And hey, even Apple does not have infinite profit).
You might think of those 3 main business processes as a “chain of events.” And how do we determine the strength of a chain? Well, that’s quite simple. It’s determined by the strength of its weakest link. And how many “WEAKEST” links are found in a chain? Only One!! And now you’ve discovered your constraint!! Yes, that’s what I’ve been trying to tell you all along!! When defining the location of the constraint, or bottleneck, it always occurs in one of those three main functional areas.
Ok, so now what do I do? Excellent question!! Dr. Golratt, in his book “The Goal” gave us a formula:
- Identify the Constraint
- Exploit the Constraint
- Subordinate everything else to the Constraint
- Elevate the Constraint
- If in the process of doing steps 1-4 the Constraint is resolved, go back to Step 1.
In our business coaching work, we find that most constraints occur from 3 main causes:
- Company Policies (written or unwritten)
- Procedures (written or unwritten)
- Measurements (written or unwritten)
I’m certain you noticed that each of the 3 causes had “(written or unwritten)” included. That’s because all companies have each of these 3 things. Sometimes they are formal written policies, procedures, measurements, and sometimes they are informal, or unwritten.
Need an example? Ok, I’ll tell you a story.
Several years ago I was working with a cabinet manufacturing company. They determined that their constraint was a computerized CNC saw they were using to cut parts that would later be assembled into cabinets. In other words, all the downstream processes were always waiting for parts coming from this CNC saw machine.
So while I was out in the plant one day, I noticed that this CNC saw was standing idle. I asked why, and was told that the saw person was on a break. I asked if anyone else could run the saw while he was on break. The answer: yes, several others could. So I asked, Well then, why not stagger the breaks so the CNC saw could continue running.” The answer, ‘The guys like to take their breaks together.” So here was an unwritten policy: “the guys get to take their breaks together (also, their lunch, and afternoon breaks).” So in other words, the resource that was keeping them from increasing their throughput was standing idle for 1 hours per day (5 hours/week, 21 hours/month, 252 hours/year). Yikes, those are expensive breaks!!
The saga continues…
One week later I was out in the plant again and noticed the CNC saw was not running. Looking into it I found the saw operator on a forklift getting wood products and bringing them to the saw. I asked him how much time he spent every day retrieving wood products. He wasn’t sure. So I asked him to time it and give me an estimate. Several days later he said it was about 3 hours per day.
And so here we have it. Two company policies, both informal, unwritten policies:
- The guys take their breaks together
- The saw operator gets his own wood products
They were causing THE MOST CONSTRAINED RESOURCE IN THE COMPANY TO WORK AT 50% CAPACITY. Needless to say, after correcting these 2 policies, the CNC saw was no longer a constraint, and the company throughput dramatically increased.
In our next article, I will discuss the problem of wandering bottlenecks, and how to settle them down.
