Increase Profitability with Constraints Management and Lean Thinking

Integrating focus and action methodologies to improve production line efficiency produces quick and sustainable results

Key takeaways: Where is your weakest link?

• Variation and dependency threaten productivity
• Focus on the weakest link (the constraint)
• Use lean tools to
  • Create stability
  • Identify value
  • Eliminate waste

For manufacturers, the most direct route to increase profitability is any opportunity to increase flow and meet demand while reducing waste. In every process, there is usually a variance or a difference between the intended outcome of the process and the actual result. Successful leaders look at every step of the process with laser-sharp focus and then form a strategic action plan to minimize the impact on the constraint.

How Much is Variation Impacting You?

When the production line is disrupted, no value is produced but the requirements remain. Downtime from blocking or starving a constraint must be recovered, and that directly impacts your company’s bottom line. It is estimated that every factory loses up to 20 percent productivity, which translates into millions of dollars of lost revenue. ¹

It is estimated that every factory loses up to 20 percent productivity which translates into millions of dollars of lost revenue.

Improving flow in manufacturing is just as pivotal as maximizing quality and output to maintain contribution margins. To understand the true cost of downtime, you must understand every aspect of the process. Certainly, you can expect variation and dependencies, but having a plan in place to deal with them is the most efficient solution.

Two types of management methods prove to be consistently successful when faced with this challenge: Constraints Management, based on the Theory of Constraints (ToC), enables increased focus and Lean Management underscores action. Integrating the two methodologies creates the perfect balance of focus and tools to increase productivity.

Fig. 1 Constraints management increases focus and lean management underscores action

What is Constraints Management?

Focus on the Weakest Link

Constraints management is the view that any process is limited by its weakest factor. It is based on the Theory of Constraints (ToC), which is a method developed by Dr. Eliyahu Goldratt to improve processes by identifying the constraint (or the biggest bottleneck) in the process. ² There may be many bottlenecks, but there is always only one constraint. The recommendation is to focus all energy and improvement efforts on that one limiting factor until it no longer slows down the process. The focus then shifts to the next weakest factor, and the cycle repeats, improving speed and efficiency and in turn increasing productivity.

The goal of TOC is to create stable throughput and maintain optimal process flow. Optimal process flow is achieved by protecting the constraint from blockage and starvation. The goal is a production line that produces good parts as quickly as possible with minimum downtime.

Organizations not focused on this strategy regularly suffer from the following challenges:

• High overtime costs
• Premium freight charges
• Cost of poor quality
• Customer complaints & issues

Discover the weakest link in your process and you have discovered your best opportunity to increase profitability because the capacity of your process is only as great as the capacity of your constraint.

Gartner Research, Inc. positions constraints management as “a useful construct for more effective planning and communication” in process management.³ It is useful because it forces the team to bring the constraint into extreme focus, and the TOC key to success is tackling one thing at a time.

Identify and Manage the Constraint

Process constraints usually fall under one of three areas: time, scope, or cost. Dr. Goldratt created a simple process to identify and eliminate the biggest problems in the process:

The Five Focusing Steps ⁴

1. Identify the constraint: Recognize the weakest link in the process.
2. Exploit the constraint: Solve the problem with existing resources.
3. Subordinate everything to the constraint: Ensure the rest of the process is supporting the constraint by protecting the weakest link from upstream and downstream variation.
4. Elevate the constraint: If the problem still exists, consider additional options until the problem is solved.
5. Prevent inertia from becoming the constraint: Move to the next problem—the new weakest link—and continue to improve the process.

Fig. 2 The five focusing steps of TOC

What is Lean Management?

Take Action

The lean approach to improving processes, originally derived from the Toyota production system ⁴, encourages the practice of continuous improvement and is based on the fundamental idea of respect for people. The goal is to create a standard for work that eliminates three key issues: overburdening, inconsistency, and waste.

Lean practices reduce production steps that do not add value to the customer in order to increase flow while right-sizing inventory and work in progress. It supports constant engagement to create customer value with more precision and less waste.

Create Stability and Identify Value

Lean management is based on five fundamental principles:

1. Identify value: Deliver value as defined by the customer.
2. Map the value stream: Challenge all the steps to reduce waste.
3. Create stable flow: Improve efficiencies for continuous flow.
4. Establish pull: Introduce pull value between the steps.
5. Seek perfection: Continue to improve, reducing the time and number of steps required.

Fig. 3 The five fundamental principles of lean management

Constraints and Lean Management

Enabling Companies to be Faster, Stronger, and More Agile

In the real world, there is always a need to compromise since all companies have finite resources. Not every aspect of every process is truly worth optimizing, and not all waste is truly worth eliminating. In this light, constraints management can serve as a highly effective mechanism for prioritizing improvement projects, while the lean methodology can provide a rich toolbox of improvement techniques. The result: manufacturing effectiveness that is significantly increased by eliminating waste.

“Constraints management is a highly effective mechanism for prioritizing improvement projects, while the lean methodology provides a rich toolbox of improvement techniques.”

What are the Benefits?

Strong leaders can focus in on inefficiencies using constraints management and then employ the right tools from lean methodology to achieve quick, sustainable increases in productivity and profitability. Benefits include the following:

• Increased profit
• Increased throughput
• Improved capacity
• Shorter lead times
• Reduced variation

Establish Change

Every organization in every industry resists change, but great leaders discover new solutions and step away from the crowd. They share strategies and knowledge, they introduce a sense of urgency and process ownership, and they provide an example of clear focus and accountability. Organizations that hesitate with their feet firmly planted in “the way it’s always been done” will continue to struggle and never realize their potential.

Best practices for Change Management

• Focus on what you should do—not what you can do.
• Stick to your strategy. Long-term solutions get long-term results.
• Watch the metrics and celebrate each step forward. Success is a great motivator.
• Get buy-in. Agree on the problem and what success looks like, create a plan that allows for enough time to get results, establish specific checkpoints, and agree on the fact that you might need to pivot.
• Create a learning organization.
• Refuse to give in early: create the plan, agree on the plan, and work the plan.

Strategy for Success

There are many strategies in the business of manufacturing, but none have proven to be as effective as the integration of Lean with ToC. Harmonizing these two approaches creates quick sustainable increases in productivity and profitability.

Keys to Manufacturing Success

• Visionary leadership
• Firm value stream manufacturing strategy and structure
• Discipline to standard work
• Daily by shift, shop floor management system
• Shared knowledge
• Process ownership
• Clear focus
• Sense of urgency
• Accountability

“The problem with a cost reduction strategy is that there is a finite limit. You can only get to zero.” — Eli Goldratt, The Goal: A Process of Ongoing Improvement

Next Steps

Increase your productivity with the team at Crossover Solutions. We tailor our approach to each unique situation. We will help you identify sources of variation and mitigate their effect as part of the continuous journey toward becoming a leaner organization. Using the right tools, knowledge, and skills for the quickest and most sustainable results, we help you address the most critical issues first while defining the exit criteria and strategies right up-front. Whether you are in a performance decline or strategically planning for future programs, our proven methodologies tactically solve problems so you can efficiently and effectively move forward.

Crossover consultants can support with:

1. Leadership training
2. Team development with Kaizen support
3. Value stream mapping (VSM) analysis to identify constraint
4. Visual management to support buffers at constraint
5. Development of metrics to support flow
6. In-process quality control (IPQC) training
7. Inventory turns and visual staging of materials

Crossover partners with you every step on the way to your success and supports your organization at every cross-function—shop floor to C-suite. There is no better time to start than now.

STABILIZE  |  ANALYZE  |  REPOSITION  |  STRENGTHEN  |  SUSTAIN

Crossover at-a-glance

We are proud to work with global C-suite and board executives, directors, fund managers and general management professionals who require critical advisory services. Your success is our success, and we bring our agility, influence, and experience in different industries (automotive, aerospace, pharmaceutical, food and beverage, pulp and paper, medical device, and consumer goods industries) to every project.

Resources

1. “The Actual Cost of Downtime in the Manufacturing Industry,” IIoT World, https://www.isa.org/intech-home (accessed Jun. 18, 2022).
2. “The Five Focusing Steps (POOGI),” Theory of Constraints Institute, https://www.tocinstitute.org/five-focusing-steps.html (accessed Jun. 14, 2022).
3. “Toyota Production System,” Lean Enterprise Institute, https://www.lean.org/lexicon-terms/toyota-production-system/ (accessed Jun. 19, 2022).
4. Colleen Young, “Understand the Theory of Constraints to Better plan Process Initiatives,” Gartner Research, https://www.gartner.com/en/documents/3300517 (accessed Jun. 4, 2022).
5. “Theory of Constraints (TOC) of Dr. Eliyahu Goldratt,” Theory of Constraints Institute, https://www.tocinstitute.org/theory-of-constraints.html (accessed Jun. 14, 2022).