The Goal: A Process of Ongoing Improvement (41 page)

Interview with Eli Goldratt continued . . .
DW: I’m back to my previous question. How come most readers of
The Goal
do not rush to implement TOC?
EG: TOC is built on the realization that every complex environment/ system is based on inherent simplicity and the best way to manage, control and improve the system is by capitalizing on this inherent simplicity. That’s why the constraints are the leverage points. That’s why the five focusing steps are so powerful. But, what we have to bear in mind is that such an approach is a major paradigm shift. And people will do almost anything before they will shift their paradigm.
From observation, I can tell you that readers of
The Goal
proceed to implement it mainly when three conditions are met. First, there is a real pressure to improve. But that by itself is far from being enough. The second condition is that it is obvious to them that there is no remedy within their existing paradigm. In other words, they had already tried everything else. And the third condition is that something helped them to do the first step. This something might be a “how to” book, like
Production The TOC Way
, a course, a simulator, or a consultant.
DW: Can you guide me to a case where all the three conditions exist?
EG: Frankly, once the three conditions had crystallized in my mind it became easy to detect them in every case. It is just a matter of asking the right questions and the pattern is apparent. Actually, there is no need even to ask guiding questions, you just have to listen.
Interview with Stewart Witt, Ongoing Improvement
A consultant
DW: I understand that your introduction to
The Goal
came before you became a consultant.
SW: Right. I was VP of operations at the time for a small manufacturing company, Ohmart/Vega Company, in Cincinnati, Ohio. Someone gave me the book with the recommendation to read it. And I read it, and it was very entertaining and made a lot of sense, and I promptly put it right back on the shelf.
DW: I’ve heard stories like that before.
SW: Right. I just wasn’t ready yet. This company had hired me specifically to improve their operations and prepare them for growth and make them more efficient, all that stuff. I had talked the president into hiring a consulting firm, saying, “I can do these things but we can get it done that much quicker with some help,” and he was fine with that. So we hired Grant Thornton, and they came in. We rearranged everything, streamlined everything. They took a look at the software we were using and made some other recommendations. We paid them about $120,000 and in about 6-8 months we started to see some results. Everyone was very happy because we took lead times down from, like, two weeks to one week. It was, wow, that’s pretty good! The problem was that the same improvements were happening in sales and marketing. So here comes 40% more orders in the same time frame, and as it trickled out into the shop, so trickled away my improvements. The capacity I had freed up was now being doubled up by all these extra orders and I was back in the same boat that I was in before.
DW: What were you manufacturing?
SW: Nuclear measuring devices for the oil industry. Essentially, it’s a non-contact measuring system, kind of like a Geiger counter.
DW: So, you were back in the same boat.
SW: Yeah, I spent all this money, all this time. All the things I knew how to do I had done. I couldn’t rearrange everything again. I couldn’t look at the software and come up with any new ideas. I had already employed the best consultants that I knew.
DW: Right. So what did you do?
SW: I signed up for Porsche mechanic school in California. It must have been a weak moment in my life. I do amateur racing and there’s a saying that goes: you didn’t make any mistake when you spun the car and flew off the track; what you did was you went into the corner and ran out of talent. That’s how I looked at it—I must not be cut out for this job, there must be something I’m missing. I couldn’t figure it out
DW: How old were you?
SW: That was ten years ago; so, early 30s. Mechanic school wasn’t a waste of time. I still use what I learned. I save 600 bucks doing my own tune-ups. But right before I left to go out there, someone said: “You know, in San Jose there’s a software company that has been created to support the rules that are stated in
The Goal
, and by the way, the Goldratt Institute has just issued a self-learning kit that you might be interested in.” So I went to my mechanic class, that was very fun. Then afterwards I stopped in San Jose, took a look at the software, and completed the workbook on the way home. I was so excited that on Monday morning I got my staff together and I said: “This is what we’re going to do. We’ve got nothing to lose. It looks like it’s possible. It almost looks too simple. Let’s give it a try.” They weren’t very convinced. In fact they were pretty skeptical. I’d put them through a lot already. One more thing, huh?
DW: This was their first exposure to TOC?
SW: Yes. Short story is, it took us about a month to go through the training materials, which came with a tutor guide and a workbook for all the participants. I went through the tutor guide step by step, they went through the workbook, and eventually they said: “I think you’re right, we can do this.” So we started, and about two weeks later we began to see some things improve. Lead times were starting to come down, our on-time deliveries were starting to go up. At first I thought it was just a fluke.
DW: What changed your mind?
SW: Well, a month later here comes one of my welders and he says: “Boss, I think my numbers are wrong. The lead time I’ve been measuring is now about a day and a half.” I said: “How can that be?” We were still running more orders. I had even had to fire a guy in the meantime, so we were down resources. And we hadn’t bought any new equipment. So I said, “Okay, fine, let me check and I’ll let you know what I find out.”
DW: What did you find when you examined the numbers?
SW: I told my welder: “You know what? You’re right, the numbers are wrong. The lead time is
less
than a day.” Same resources, 40% more orders, a fraction of the lead time. Took us two months to do that. Cost us $500. The company was a hundred years old and they had the best two quarters that they’ve ever had. One division that was losing a million dollars a month was now making a million dollars a month. If I hadn’t seen it with my own eyes, I would never have believed it.
DW: What was the constraint you exploited to make such a huge difference?
SW: We actually worked through about three of them. One of them had to do with the fact that we were sending everything out to put a protective coating on the pipes that held the measuring equipment. It was a step that had been added at some point by the marketing department, and it had developed into a constraint. So we had to go and find one or two more suppliers to handle the load.
DW: And there were others?
SW: One was the saws that cut the pipes. We offloaded some of the work to another machine that was just sitting there doing nothing. That saw ran at half the speed of the other saw, no one ever wanted to use it. But we identified just the right materials to run on it, which built just enough capacity to eliminate the saw as a constraint. And then the paint department was next, we did a couple of things there. At which point the constraint shifted to engineering. We were waiting for some new products to come out, and that’s kind of where it ended up.
DW: Do you believe that TOC is an infinite process? In other words, is there always going to be another constraint you can find and exploit?
SW: Theoretically, it can go on forever. But from what I’ve seen, it goes through one or two cycles within a facility, and then you’ve kind of broken the constraint in the production operation. Then it may move to, say, engineering. Then you can apply Critical Chain to the engineering group and eliminate that as a constraint, and then the next constraint usually is the market, and typically it’s the existing market. Unless you’re Coke or GE or whoever, you probably don’t have a dominant position in your market. So you can still find room to grow. Finally, there are plenty of cases where, using the same capabilities that you generated using TOC, you can attack new markets that you never thought you could compete in. At that point, you’re probably doing all you can handle anyway.
Or maybe it goes back to manufacturing again. Could be, yeah, and you definitely know how to deal with that by then.
DW: Alright. So then you moved on?
SW: I actually went to Grant Thornton for two years and worked on developing other TOC skills and applying what I knew to an ERP [enterprise resource planning] implementation at a plant in Mexico, working with Navistar International. I did that for about two years. Traveled to Mexico a lot, gained about 40 pounds, got no exercise. But it was kind of fun. Then I went to work for a consulting firm. Within about a month I was put on my first project, involving TOC, at a manufacturing facility in Clarksville, Tennessee, where they made graphite electrodes for the steel industry. It was a big plant, had been there quite a while, and it was already their best plant of that kind in the world. They made it a challenge for us, saying, “If you can improve things here, then we’ll consider applying your methods elsewhere.”
DW: This was a large-scale implementation?
SW: Huge. The plant covered half of Tennessee, it seemed like, way out in the middle of nowhere. So we put a small team together. It was me and another guy and about half a dozen folks at the site, and we went through the exact same training I had done the first time at Ohmart/Vega. Was exactly the same concept, exactly the same ideas. The only thing different was the context. We had software systems we had to integrate—five different software systems that had the data in it we needed. We identified the constraint, and did all the usual things, like making sure there was a buffer in front of it, making sure the maintenance guys were giving it top priority so if there’s any trouble they could fix things right away. We put a quality check in front of it so that we weren’t wasting time processing any bad electrodes at that point in the process.
DW: What was the upshot?
SW: No change whatsoever in on-time delivery. The company already had an excellent record in that regard and by the time we had finished, it still had an excellent record. But the only reason they could deliver on time before was because they had more inventory than they really needed. They just stuffed the shelves full of electrodes, had them sitting all over the place. So you see, we didn’t disrupt their delivery performance at all, they continued to deliver 100% on-time. But in the end they did it with about 40% less inventory. And they were very satisfied with that because that essentially freed up almost $20 million that they could now use elsewhere to run their business. Based on those results, the CEO stood up at a big meeting one day and said that this is what we’re going to do worldwide. We brought representatives from Spain, Brazil, Italy and South Africa to Clarksville as part of a worldwide implementation team. It’s become a classic case of phenomenal improvement and a very satisfied client.
DW: So this is what you do now? TOC-based consulting gigs?
SW: Yes.
DW: Do you offer TOC as one option among many, or is this your primary approach to problem-solving?
SW: Maybe there’s a third way. If I’m invited to participate in some of the initial meetings with the client, I may approach it differently than some of my colleagues. They’ll come in and say: “We have this line of services, which one do you want?” What I do is ask questions, like Jonah does in the book. That helps me decide if there is a fit for what I do. Basically, I try to help clients understand that if you address the core problems rather than the symptoms so many people focus on, you can almost promise good results.
Interview with Eli Goldratt continued . . .
DW: What are the limits of TOC? Can it be applied also to service-based organizations?
EG: Yes, but... And in our case the “but” is quite big. Let me start with the “Yes.” Yes, any system is based on inherent simplicity, in this sense there is no difference between a manufacturing organization and any other organization, including service organizations. Yes, the way to capitalize on the inherent simplicity is by following the five focusing steps; identify the constraint, decide how to exploit it, etcetera.
The “but” revolves around the fact that it might not be a triviality to figure out how to actually perform each of the five steps; to figure out the detailed procedures. In
The Goal
, I introduced the overall concept and, through the detailed procedures for production, proved its validity. In
It’s Not Luck,
I’ve explained the thinking processes needed to develop the detailed procedures to perform each of the five steps. As teaching examples, I showed how the thinking processes are used to develop the detailed procedures for sales of several different cases of manufacturing organizations. So, as a result, manufacturing organizations are not presented only with the approach and the concepts but also with the detailed procedures. Detailed procedures are not available for most types of service organizations. Therefore, in order to implement TOC in a service organization, one has to follow this generic knowledge and first develop the specific procedures. This is, of course, a much bigger task.
DW: So why didn’t you write another book for service organizations?
EG: As you know, we use the term service organization for a very broad spectrum of totally different types of organizations. Organizations that are different from each other no less than they are different from manufacturing. You are not talking about another book, you are talking more of a library.
DW: Can you give me an example of a TOC implementation in a service industry? Any type of service industry?
EG: Let’s start with a company that does not design or manufacture anything, and therefore is called a service organization. Still they deal with physical products; something that you can touch. An office supply company.