It is a very widely held belief in business that each station in a production line should be working as hard as it can in order to maximise its efficiency. This might be a car assembly line or an accountant's office processing tax returns using several different stages in the accounting process.  In other words, each stage is working at its Local Optimum.  Generations of Cost Accountants have encouraged this and spend endless amounts of time trying to split, for example, the cost of electricity over each work stage in the production cycle. This is probably seriously flawed thinking.

 

Do you hate to see staff within a workflow standing around doing nothing?

Actually, they might be doing you a favour.

Running each and every stage of a workflow to its maximum ability is a recipe for damaging your profitability:

  • If you aim to run every stage of your workflow at its maximum productivity, you are optimising each of these separate stages independently to produce as much as possible at each stage. 
  • Intuition suggests that this must be efficient because we are maximising the use of the staff and equipment resources at every point in the workflow.
  • Many businesses measure operator efficiency to be sure that the operators are as productive as possible.
  • Managers and supervisors can get into trouble if operator efficiency statistics drop.

We refer to this process as creating Local Optima, meaning optimising what is local to each stage of the workflow.

In fact, the whole profession of cost accounting has grown up to make these measurements and to ensure that every production stage is charged its fair share of Overhead Costs.

Consequently, maximum production at each stage means more product over which to distribute that stages share of the Overhead Costs.

Good thinking? Not really.

The very important Theory of Constraints (TOC), teaches us that, generally, there is just one stage in the workflow that is the limiting factor or constraint.

Production throughput cannot go faster than this limiting factor or constraint of the workflow .

Example:

Think of an hourglass. The sand cannot go faster than what the pinched waist, or constraint, allows. No matter what you do, it is the same in your businesses workflow.

The constraint is effectively the heartbeat of the workflow, and every other step in the workflow takes its cue from the constraint's heartbeat.

This means that all the other stages, which by definition cannot go faster than the constraint, are simply producing a Work in Progress (WIP) that stockpiles in front of the constraint, or other stages in the workflow, waiting to be processed.

Further reading on this topic at the article: Theory of Constraints (TOC)

This WIP has a cost: 

  • The raw materials used, electricity and other similar inputs, labour.
  • It consumes cash (usually a scarce resource) well before being turned into a saleable product.

Example: 

Consider a car assembly line for a 4 door vehicle.

The door making assembly line can produce 40 doors a day at a cost of materials and labour of $100 each.  

The car assembly line can produce 8 x 4 door cars a day consuming 32 doors and so each day sees 8 surplus doors added to the WIP in front of the slower car assembly line.  

In a year, this is around 2,000 more doors than required. 

Cost of  WIP of $100 X 2,000 = $200,000 sitting around doing nothing.  

But, the door making unit is working to its maximum efficiency at least!

The door making line is an example of Local Optima that actually damages the profitability of the company. 

Operating at Local Optima in a constraint limited world is not smart practice.

What does a Profit Savvy manager do with all the Workflow stages, other than Constraint, so we do not suffer the ill effects of Local Optima

1. This is the big psychological step for the manager to accept that more production is not necessarily a good thing.

2. Give permission to staff that it is ok not to produce to the maximum they can now.

  • This might come as a shock to them as it reverses longstanding practice. 
  • Good workers will feel uncomfortable standing around.
  • There is a name for this:
    • Parkinson's Law states that work will expand to fill the time available.
    • People will "make work" in order not to seem to be slacking off.

Further reading on this topic at the article: Parkinson's Law

3.  Re-tune your Workflow stages for this new reality.

  • The Constraint is the heartbeat of your Workflow.
  • Any stage upstream of the constraint, that is before it, can be reconfigured to only produce what the Constraint needs. 
  • This might mean fewer working hours and/or fewer people and plant at each Workflow stage.
  • The distribution of work stages can be moved around among staff:
    • Particularly if it turns out they can work the same amount of time but cover more Workflow stages.
    • The pressure is off to produce as much as they can with the Workflow stages they already have.
  • You can continue to refine the Workflow by reading up about pacing systems like ‚ÄúDrum, Buffer, Rope" and Takt Time.

Further reading on these topics at the articles:
TOC Drum, Buffer, Rope Optimisation Techniques
Takt Time

Resources

A number of easy to read business novels that illustrate the Theory of Constraints (TOC) Tool expand on this issue.
Scroll to the Resources section of this article.

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