- About TOC
- Learn TOC
|Finance & Measures Annotated Bibliography By James F. Cox III|
This presentation discusses three questions: If we implement the TOC distribution solution on a retailer, what will be the impact on its profit?; Can I use current retailer/distributor numbers in throughput accounting and make decisions without errors?; Which factors impact the financial results more in a distribution environment?. The discussion centers around the financial statements and throughput, inventory and operation expenses, a reexamination of T, I, OE; the truth about T; where is my I; OE is really OE; the financial impact of TOC distribution and modeling the impact. Financial accounting statements are described as they relate to T, I, and OE. A model illustrating the impact of shortages over time is provided.
Barnard, A. M. S., Rocco (2012). Hyde Park session - TOC strategy & tactics tree vs. Balanced scorecard strategy maps. TOCICO International Conference: 10th Annual Worldwide Gathering of TOC Professionals, Chicago, Il, Theory of Constraints International Certification Organization.
A Hyde Park session. A comparison of balanced scorecard (BSC) and strategy and tactics (S&T) trees is provided. A study showed that the companies that got real value from balanced scorecard were ones that understood the cause-and-effect relationships of measures. Asking the question HOW lets you dive down from the top of the S&T tree to the bottom. If you ask WHAT FOR you are going up the tree from actions to top level strategies. Balanced scorecard four aspects are financial, customers, processes and internal learning. BSC is the classification level of science. BSC and S&T are similar in structure (levels). BSC generic strategy map was presented. A discussion of Southwestern Airlines Balanced Scorecard is given. The BSC is missing the assumptions of the S&T tree. In the S&T we must be at the actionable level; The BSC is at a much higher level (no details). A good measurement must first accurately give the status of the system; (under what circumstances does it not identify the correct status). Second, the criterion must give us the cause of the deviation (supply and demand). Third, is the measure driving the right behavior? What do you want people to do? Now what measurement tells me they are doing that?
Bradley, J. and K. Francis (2005). Financial measurements and cost buffers in projects. TOCICO International Conference: 3rd Annual Worldwide Gathering of TOC Professionals, Barcelona, Spain, Goldratt Marketing Group.
The purpose of this presentation is to propose the development and use of cost buffers in critical chain (CC) environments. The presentation’s organization is an overview of earned value management systems (EVMS), measurement types, EVMS problems, EVMS in a critical chain environment and cost buffers. Earned value assumes that good global optima are achieved by focusing on local optima. It summarizes over time how we plan to spend money (PMB = performance measurement baseline). There are 32 items as part of EVMS. Cost Performance Index (CPI) and Schedule Performance Index (SPI) are discussed. Measurement types include performance, operational and conformance. EVMS is a conformance measurement. EVMS problems are described. There are ways of reporting EV under critical chain but you don’t use it to make decisions. Would it not be better to develop a measurement useful in critical chain? Cost buffers. Three methods of calculating cost buffers are presented. The advantages and disadvantages are discussed. These are being investigated to replace the two indices and be in line with critical chain use in the Department of Defense.
This workshop covers in great detail the content of the theory of constraints finance and measures certification examination administered by TOCICO. The objectives of this workshop are to help prepare for the F&M TOCICO examination; to stress the necessity of functional areas having the same ultimate goal and consistent functional goals; to look further at throughput accounting, and to convince you that you cannot fight or ignore accountants not fully trained in TOC; you need the accountants on board and traditional internal accounting (unit costs, efficiencies, performance to budget) can sink a TOC implementation. The exam content is specified and illustrated through extensive examples.
Cohen, O. (2013). Developing local operational indicators and money buffers. TOCICO International Conference: 11th Annual Worldwide Gathering of TOC Professionals, Bad Nauheim, Germany, Theory of Constraints International Certification Organization.
TOC puts extreme importance on measurements as a major influencer on the behavior of people within systems. TOC points out that improper measurements can cause existing systems to perform below their potential. Yet TOC provides just directions for the new measurements. Many companies that implement TOC logistical solutions request more concrete answers to two major questions: One, what measurements should be used in order to motivate management and the workforce to act and behave in line with the company’s goal? Two, practically, how to ensure that there is enough budget to finance the actions that management is expected to take as per the TOC solutions. This master class deals with these two practical questions. First, we define Local Operational Indicators (LOIs) for the organization level of department or a function within the organization. These LOIs help to ensure that the local activity supports the good of the company. We will suggest potential LOIs and the way to numerically and visually use them. The second part of the class suggests the development and the use of money buffers for the TOC logistical solutions. The buffers of the logistical solutions provide early warning and prompt management to take corrective actions before it become too late and too costly. Yet, these actions usually demand additional expense. The money buffers should provide the financial support and control of such actions. The application of money buffers is demonstrated for the different TOC logistical solutions.
This presentation describes Dixie Iron Works journey in Theory of Constraints. Founded in 1933 in Alice, Texas, the TOC journey started in 1992. Dixie Works was declined as a Viable Vision client. Dixie Iron Works is in the oil field business making high pressure plug valves (small valve $800) and high pressure well pumps ($250,000) with 158 employees never having a layoff. Facilities are also in Canada and one coming up in Mexico. In three weeks of implementation we got rid of all work-in-process shelves. Last year we had a 48% growth in revenue with a 141% growth in profit. Sales buy-in was instrumental in this significant growth. Prior to the last year or so we had only drum buffer rope (DBR) implemented and did not leverage it to the market.
Denison, R. (2012). First throughput accounting then GAAP: Standing on the shoulders of the TOC creators. TOCICO International Conference: 10th Annual Worldwide Gathering of TOC Professionals, Chicago, Il, Theory of Constraints International Certification Organization.
This presentation provides a discussion on compromises many companies make when implementing an ERP system, and how this creates conflicts that must be overcome by using throughput accounting (TA). Since TA is often an add-on or substructure to the traditional cost reporting it is always subordinated to the traditional cost accounting methods. I propose implementations to first be concerned with product flow and TA, and then add the Financial Accounting. Three points are emphasized: how MRP and ERP systems grew to include the compromises; why setting up flow first is important; and how TA could be the main way for internal decision making.
Eckerman, D. (2005). Breaking through In a sixty year culture at LeTourneau, Inc. using TOC. TOCICO International Conference: 3rd Annual Worldwide Gathering of TOC Professionals, Barcelona, Spain, Goldratt Marketing Group.
LeTrourneau (LT) is headquartered in Longview, Texas with manufacturing locations in Longview, and Houston TX and Vicksburg, MS and with dealer locations worldwide. Markets served include controls, drive systems, intermodal mining, drilling, forestry, marine, and steel. LT characteristics include: 1. Product leadership makes the largest products in the world. Jack-up rig sells from 150 million to 300 million dollars. It is delivered as a kit valued at about 40 million then is built with about a million man-hours as a 1 to 3 year project. 2. Make steel from scrap making thick plates 2-10 inches. 3. Build front-end loaders 7000-75000 parts works 8 years with over 90% uptime. 4. Have produced most of these products for over 50 years. We have only been in the drilling market for five year. We are heavily vertically integrated which is unusual for heavy equipment manufacturers. Typical UDEs include long lead times, high WIP, high obsolete inventory, very low inventory turns, low on-time delivery, high overtime and expediting, exiting markets due to pricing competition, poor cash flow, and low ROI. Total reliance was placed on GAAP for decision making for product pricing, transfer pricing, sourcing, capital expenditure, product profitability, etc. In 2000 we implemented drum buffer rope (DBR), installed MAPICS finite capacity planning module causing on-time delivery to increase from 10 to 75%. In 2004, Constraint Management Group (CMG) worked with LT providing the Jonah program. In 2005 we implemented TOC company-wide. The core conflict was A Maximize LeTrourneau ROI with B Meet LeTourneau’s customer and market requirements and opportunities requiring D Focus and act on company performance and the other requirements C Maximize margins and metrics under my control requiring D’ Focus and act on local performance. The primary injection was simple correct signals between business groups (BGs) and resources that maximize company throughput, net profit and ROI. The planning and control dilemma existed also. One strategic point was selected for each BG and component group. When we turned on the buffers we found we were working on green items (early items) when we had a lot of items in red (almost late). Steel Group implementation results showed previously poor financial performance to extremely profitable and included productivity increased 25%, WIP inventory decreased 25%, cycle time decreased 64% (14 to 5 weeks), on-time delivery increased from 50 to 90%, and plate inventory held decreased 2.6 million dollars.
Ferguson, L. A. (2013). Finance & measures basics workshop. TOCICO International Conference: 11th Annual Worldwide Gathering of TOC Professionals, Bad Nauheim, Germany, Theory of Constraints International Certification Organization.
The workshop was presented by Rocco Surace. The Finance and Measures (FM) Basics Workshop is intended to be an introduction to this topic in which a person can become TOCICO certified. FM is about utilizing the appropriate measurements for making effective managerial decisions.
Dr. Lisa Anne Ferguson will be facilitating a series of 'Zero to Sixty' webinars for those wanting to learn the fundamentals or basics of TOC finance and measures. These webinars would also be a good review of those topics for those familiar with TOC
This presentation describes a method for constraint identification (questions to be asked about the market, production facility, and the suppliers), defines cash constraint, describes issues with cash constraints, discusses how to manage a cash constraint and provides a case study illustrating the concepts. A cash constraint exists only if there are sufficient orders, excess manufacturing capacity on all equipment, and suppliers are refusing to supply unless paid up-front. Definitions, measures and supporting throughput calculations are provided for cash to cash cycle, throughput, survival time, etc. Issues related to having a cash constraint, common mistakes, measurements, etc. are described and a simple example illustrates supporting concepts and measures.
Gilani, R. (2013). System productivity. TOCICO International Conference: 11th Annual Worldwide Gathering of TOC Professionals, Bad Nauheim, Germany, Theory of Constraints International Certification Organization.
Every organization would like to improve its productivity. However do we have a clear measure of productivity? Are we talking of workers’ productivity, supervisors’ productivity or managers’ productivity? What about the productivity of functional heads or even the CEO? Most organizations do have some measurements for the productivity of workers or for the lower level employees. Many organizations have Key Result Areas (KRAs) for the middle & senior management. While we have many surrogate measurements for performance or productivity of parts, do we have any one measurement for the whole organization? The only purpose of measurements is to help make the right decisions or taking corrective actions for achieving more and more of the goal units of the organization. Hence the system productivity measurement must state unequivocally if the organization is moving forward, stationary, or slipping back. The second criterion for such a measurement is that it should be simple to measure and people can relate to it intuitively. This is an attempt to suggest one measure for the entire organization--System Productivity.
This presentation is an interview by Alex Knight of Dr. Goldratt about measurement. How is a goal defined? How might we measure success towards moving to the goal? How might we define the goal and measures for a for-profit versus a for-purpose environment? Never ever put certainty on uncertainty. Story of Lamore Winter: What is your goal in life? Lamore: To make sure that people do not need illness. If you keep asking: What for? And you keep getting the higher objective you think it will go on indefinitely but you get to the different identicals. Here you are back in a circle each leading to another in the circle. In some cases it is three identicals in some cases it is more. Here all there are identicals in achieving the goal. For-profit organizations, make money now and in the future; provide satisfaction to customers now and in the future and provide satisfaction and security for employees now and in the future. Many things in life cannot be quantified. In this set of identicals there is one maybe two that cannot be quantified. What is quantified takes precedence over non-quantified identicals. People are using measurements instead of thinking. People prefer quantitative over qualitative and uncertainty is involved in decision making therefore probabilities must be associated with outcomes.
Critical chain project management (CCPM), from the earliest beginnings to one of the major shifts in project management over the last forty years, represents a paradigm shift in project management and one that is still being explored. CCPM is not just about managing projects or about managing programmes. CCPM is a business methodology that challenges the way you do business, the way you manage people, the way you engage with clients and suppliers – it is a systemic way of managing in the project environment if not THE way to manage! There are software systems, training systems, implementation systems all designed to help you implement and manage according to CCPM principles BUT despite all the success that has been achieved there are still three areas to be addressed: 1. The people dimension. a. This is about developing internal people to maintain and sustain the progress – always challenging the status quo, never satisfied with 'now' and looking to what must be done tomorrow, this is a leadership role rather than a management one. We have too many managers and not enough leaders. Leaders are people who can inspire, who can encourage, who can help to draw out of those around hidden potential, leadership is a necessary condition for any organisation and that includes project driven ones. b. It is also about managing the change process – this is where coaching comes in – working with each individual, sitting alongside, helping them to overcome the barriers they perceive will prevent them from moving forward. This is about helping those involved to see just how the changes will affect them, and allow them to be what they wanted to be in the first place – good project managers, good resource managers, good engineers and so on. This is about releasing the potential within each person and using that potential to gain significant economic advantage and secure jobs into the future. 2. The metric dimension. a. It is an old cliché but if the measures don’t change neither will much else – and still many people even within successful CCPM organisations have not thought through the metric changes required So a short part about the importance of changing the metrics for any chance of a successful implementation, 3. Sustaining the progress. a. The technology does not sustain progress, people do, so invest in the people, recruit the best when needed, train them, coach them, allow them to make mistakes, and above all train and coach them to make really informed choices.
Jaeck, P. (2013). Throughput accounting, transfer pricing, and the international fiscal environment. TOCICO International Conference: 11th Annual Worldwide Gathering of TOC Professionals, Bad Nauheim, Germany, Theory of Constraints International Certification Organization.
The goal of the presentation is to focus on the issues generated by transfer pricing policies when implementing a management accounting system based on throughput accounting in a multinational company operating in 53 countries around the world. An international transfer pricing system has to be documented and justified to the local tax authorities. The objective of the session is first to review the main transfer pricing rules available and then to present the simplified solution we finally implemented. We need to charge the subsidiaries and the branches of the company in order to transform a cost center to a profit center in France because we have to reimburse French investment funds. Since throughput accounting prevents cost allocation, it becomes very difficult to design a transfer pricing solution based on a 'cost plus' methodology. The Evaporating Cloud of the dilemma is provided. To overcome this dilemma, we defined a simplified transfer pricing solution.
Kohls, K. (2012). The 7 key points for designing profitable manufacturing systems. TOCICO International Conference: 10th Annual Worldwide Gathering of TOC Professionals, Chicago, Il, Theory of Constraints International Certification Organization.
If a manufacturing company desires long-term growth and profits, and realizes change is a constant, sooner or later they will be faced with designing or redesigning their production system. Despite the prediction of profits and flow, most of these designs have neither, and the company struggles with the effects of low ROI and poor delivery performance. Often, this new elephant leads to the downfall of the company as a whole. During the early phase of the design process, management creates a list of all things this new system must have. Be profitable, have high ROI, have 100% delivery performance, have minimal inventory, reduce headcount, have no variation, meets forecast, etc. In addition, key concepts are tossed in from what they understand from current continuous improvement (CI) processes. Use one-piece flow, U-shaped cells, single-minute changeovers, have no bottlenecks, use pull systems, use less workers to reduce costs, etc. The vast number of requirements, few of which have been achieved in the current production system, overwhelms designers. To ensure all these requirements are met, experts from each area and CI method are included, and charged with making sure their key "must haves" are firmly in place – no compromises allowed. It’s clear that a self-defense needs to be implemented to ensure the goal of this manufacturing system is being met. In this presentation, seven key points are reviewed as the building blocks to develop this method and to ensure the profitability of the future design. The vast majority of these design points are based upon the work of Eli Goldratt, but lean experts will recognize several key points as well. A key issue, the ability to design in the bottleneck, and design out management constraints, is addressed.
Lang, L. and B. Stillahn (2013). 5 major marketing mistakes. TOCICO International Conference: 11th Annual Worldwide Gathering of TOC Professionals, Bad Nauheim, Germany, Theory of Constraints International Certification Organization.
5 Major Marketing Mistakes: Marketing is connecting with your target market and showing them you have the stuff that solves their problem or delivers better outcomes/ results, explaining it to them where they can be found and helping them to buy it. Here are 5 major marketing mistakes: 1. Not selecting a target market or niche. • Your target market is the people you want to sell to along with the products/ services you sell. People with specific needs and the specific stuff they need equal a target market. • UDEs will only make sense to your market IF they are really THEIR UDEs. • The TOC Buy-In process is missing layer 0. It’s very difficult to gain buy-in from an unknown, un-described, entity. • If your target market is not specific enough, they won’t relate. The more specific and targeted your market, the more you can talk directly to them and in their language. • Where do you make the most Throughput for the least amount of your capacity? • What are your under exploited assets? • Opportunity is … a need to be fulfilled … a want to be addressed … a fear to be relieved … a problem that needs to be solved. For opportunity to flourish there needs to be an identifiable group that will buy it and a profitable way to contact and engage the target market. • When most hunters go out to hunt, they think like hunters. When a master goes out to hunt, he thinks like a deer. • Knowing what your market really wants and who they really are is very important. Communicating where they’re at without making them wrong is important, while pushing their emotional hot buttons. Rationality is used as a tool to support the emotional. • Write your marketing to ONE very specific person (your Avatar – a member of your target market). • Market WHERE they hang out and in the way (type of media) they hang out. 2. Not measuring at all or not measuring the right things. • In operations we can physically see constraints. In marketing we don’t have this ability – we need data. • What’s working for you – twitter, LinkedIn, website, webinars, direct mail, Facebook, Interest, article writing, PPC, retargeting, blog posts, TV, banner ads, podcasts, cold calls, video marketing, leaving comments, mobile marketing, email marketing, or what? • How many leads do you generate? By what method(s)? What is your conversion rate at each step of your sales inversion process? • What’s your sales conversion process? Retention process? • What’s your upsell and/or post sale process? • What do you spend on marketing and what ROI does each generate? (BTW your ROIs will be much better if you have a specific target market.) • When calculating your ROI, consider both time and money. • If you don’t know these numbers, how will you know where to focus your efforts and what to improve? • Testing is how we improve our marketing. What to test, in what order depends on what your measures are indicating. Test your message - wording, pictures, colors, placement, fonts. Test the medium - direct mail, ads, videos, webinars, closing techniques. Test your sales process. Test where/ how your make your offers, as well as, the specifics of your offer. • The ability to turn floods of information into real knowledge has become one of today’s most valuable resources. 3. Not understanding what you’re selling. • It’s not about you or your product/service. • It’s about them and the outcome or better results they’re seeking. • The customer doesn’t want products, services or techniques – they want an outcome! • People want value. The way we offer them value is in the form of results which is in the form of our products or services. • Selling a tangible, measurable results that the customer can expect to experience in the real world dramatically increases the price you can charge. • We want high value products/ services that are tailored to our customers needs so that they say to themselves – I never knew someone could understand this at this level. • If you don’t understand your target market (#1) nor what you’re selling, then you have no chance of knowing what competitive advantage to create or what mafia offer to make. 4. Doing nothing to generate leads. Thinking that hope and a website are a strategy. • The more you can spend to get a lead, the less you have to worry about competition. • There are lots of ways to generate leads. Which is best depends on your situation. That’s why testing is so important. • You can start by seeing what competitors are doing. If they are using a particular lead generation method for more than 4 months, they are probably getting an ROI from it. • Draw your funnel and track the data. • There are 3 ways to GROW a business. 1) increase the number of customers; 2) increase the T per transaction; and 3) increase the frequency of purchase or repurchase. 5. Push marketing instead of pull marketing. • Leverage applies in marketing just as it applies in operations. It costs you the same to send out a flier that gets a 1% response rate or a 10% response rate. By working on the right things in your marketing you greatly increase your leverage. • Getting prospects to seek YOU out and/or realize 'I need help' is pull marketing. • Spewing everything you know out to your market is about you, not your customer. • Your marketing should itself be valuable. Give away some of your best stuff. • Get people to act NOW. • Give your prospects results in advance. • Call out the elephant in the room. • Repurpose content. • Inherent simplicity applies in marketing too. People want simple ideas, not complex ones. Influential writing is not about writing better, it’s about simplifying things in a better way. • Without a detailed avatar of who you are marketing/ writing to/ for, and what makes them tick, you are engaging in blind target shooting.
Machado, W. (2011). Applying TOC distribution on a high demand variability environment: A case study in one of the largest cosmetic franchise chain in the world. TOCICO International Conference: 9th Annual Worldwide Gathering of TOC Professionals, Palisades, NY, Goldratt Marketing Group.
This roadmap to success is based on work at a Brazilian company, from a case study at the world’s largest cosmetics franchise chain. We tested the impact of an event-managed process on TOC distribution and measured the performance of the company´s stock policies. Based on TVD/IVD (throughput value days and inventory value days), we concluded that this combination can create an environment with more efficient replenishment with higher stock turns, less stock-outs and increased sales.
This presentation equips the audience to differentiate between lean accounting and throughput accounting, in order that they cope with the recent wave of interest in lean accounting. It fosters debate on cost-world vs. throughput-world thinking. Key learning points include: 1. Review of lean accounting literature, including recently published articles, books, internet discussions; 2. Show similarities and differences between the lean accounting and throughput accounting to measurement in operations; 3. Describe the different approaches to lean accounting, and the philosophical background. Benefits to attendees include: an overview of what the lean community is talking about with regards to measurement and accounting; understand differences between lean accounting and throughput accounting, enabling them to see when lean accounting is really cost accounting without absorption; attendees are able to cope with the recent deluge of writings on lean accounting, and work with practitioners to redirect thinking towards the throughput world.
Ojeda, D., et al. (2013). Building a decisive competitive edge in the microfinance segment in Mexico. TOCICO International Conference: 11th Annual Worldwide Gathering of TOC Professionals, Bad Nauheim, Germany, Theory of Constraints International Certification Organization.
Mas Kapital is a Microfinance company located in Mexico. They have grown fast for the last 6 years but they were worried about the imminent threat of losing control of the processes and they decided to adopt the TOC philosophy in order to stabilize the company. In 2010 they met Dr. Goldratt and they decided to make a full TOC implementation grounded on their Viable Vision project. Since the beginning TOC tools were utilized in order to identify the undesirable effects. From this point we identified the major constraint as the loan submission analysis process, subordinated all the company efforts in order to only process good qualified potential customers and filter them in a better way to reduce credit risk and reduce bad debt, at the same time we divided the sales force responsibilities and tasks in order to focus the collections activity and align the promotion process to the real needs of the company, once we had the operations control TOC thinking processes were used to identify a significant need of the market and design Mas Kapital decisive competitive edge.
Petrarolo, D. (2009). Navigating the perfect storm: A holistic approach to managing change for survival in an automotive component organization. TOCICO International Conference: 7th Annual Worldwide Gathering of TOC Professionals, Tokyo, JP, Goldratt Marketing Group.
This presentation describes how a mid-sized company in the highly competitive automotive component industry implemented a holistic approach (a systems and scientific approach) to improvement to deal with very difficult business and economic conditions. The presentation covers how the system starting conditions were addressed or changed, how the rules for managing the system were changed and how the system goal was aligned through changes in measurement. The application of change management processes, organizational design and best practice were also combined to support a business strategy for survival.
This presentation describes the use of the thinking processes (TP) logic diagrams for determining and managing the required change and to discuss their use in implementing performance improvements within a governmental service organization. Key learning points include: (1) Establishing improvement measures in a cost-center subsystem; (2) Quantifying performance in a non-profit environment; (3) Appreciating the importance of avoiding political correctness in stating the core conflict; and (4) Using a systematic approach to the development of a strategic injection that will invalidate multiple assumptions underlying the core conflict. Benefits to attendees include: (1) Discuss issues associated with the global performance measurements (T, I, and OE) in a public sector organization; (2) Learn how to overcome pitfalls in using the TOC TP in a governmental service-oriented subsystem; (3) Discover how the TP have enabled public sector managers to use ‘out-of-the-box’ thinking to overcome their system constraint.
Rhind, B. (2006). Achieving breakthrough sales at Prince Manufacturing Corporation. TOCICO International Conference: 4th Annual Worldwide Gathering of TOC Professionals, Miami, Fl, Goldratt Marketing Group.
The organization of this presentation is to provide a description of Prince Manufacturing and its problems, the theory of constraints solution, the implementation approach, the results and the lessons learned. Prince Manufacturer was formed in 1950 and now has five plants making welded and tie-rod cylinders, mono block and sectional valves, pumps and low speed, high torque motors (ISO 9001 certified). They sell direct to large original equipment manufacturers (OEMs) and use 18 distributors for small OEMs and catalog sales. The company experienced minimal growth and flat profitability over the past 3 years. They investigated TOC as they were frustrated with the status quo; they intuitively knew there was a better way as they had some knowledge of The Goal, and wanted to consider that a Viable Vision (VV) might exist. The TOC solution included: guaranteed on-time availability and rapid response. The secondary offer to distributors was vender managed inventory (VMI) and availability of high volume products. The solution for sales steps of the SFS process consisted of creating the offer, synchronization between operations and sales, training, delivering the offer, managing the pipeline and leveraging the offer are described in detail for each market segment. Results include offers accepted grew from less than 20% to over 80%. The pipeline expanded 10 fold in six months. The solution for sales now represents 70% of current sales. Lessons learned include: sales can never start too early, not all sales people are equal, identify and implement measures early, etc.
Ricketts, J. (2009). Reaching the goal: How managers improve a services business using Goldratt’s theory of constraints. 1st Annual North American Regional TOCICO Conference, Tacoma, WA, Goldratt Marketing Group.
This presentation explains how TOC has been adapted for use in professional, scientific, and technical services (PSTS). Such services are highly customized and delivered on demand, so they are dramatically different from the manufacturing and distribution sectors where TOC began. Consequently, every TOC application requires some adaptation. Nevertheless, it shows that TOC can be applied across the full spectrum of services industries, which comprise the majority of today’s economy.
Services account for over two-thirds of economic activity today. Reaching the Goal adapts TOC applications for use in professional, scientific, and technical services (PSTS). This presentation explains why services have unique requirements and how drum-buffer-rope, replenishment, critical chain, and throughput accounting have been adapted to work in services enterprises providing highly customized services.
Ronen, B., et al. (2013). Introducing the Superzouf method for service organizations. TOCICO International Conference: 11th Annual Worldwide Gathering of TOC Professionals, Bad Nauheim, Germany, Theory of Constraints International Certification Organization.
Many service processes suffer from long overall lead times which result in reduced throughput, high work in process (WIP) and low customer satisfaction. We found that in most cases these processes have individual service level agreement (SLA) targets for each step of the process. It looks as if giving each department the responsibility for meeting its own SLA target is a good idea. But in reality the duration of steps in each department were never shorter than the required SLA and in most cases even longer though the actual touch labor duration is usually very short. We introduced the notion of 'Superzouf' in several service processes by setting only one global SLA for the whole process and aggressively reducing the amount of WIP in each department. Within several months the overall lead times of these processes were trimmed by more than 80% with subsequent improvement in customer satisfaction. A structured method for reaching this goal is described.
The Viable Vision (VV) is to turn the current sales into annual net profit in 4 years. The main elements are significantly increasing sales volume and ensuring the full support of the logistics to meet the market requirements. The focus of this presentation and simulation is to experience the capacity considerations during the VV project. We need to predict by how much we need to increase the sales volume. Net profit is T – OE. T = 55% OE is about 65%. NP = -10%. OE changes but not linearly; incrementally. An example is given from the base line to two different scenarios. Sales should go up by 4 fold. What is the impact on capacity and OE? Additional OE is computed based on second shift, purchasing machinery, hiring workers, etc. The various scenarios of a manufacturing facility are simulated for three years and the results used to see progress on the Viable Vision. The main insights are: the market is the major constraint; lead time depends mainly on the excess capacity of the weakest link; plan only what is absolutely necessary to achieve the objectives; protect planning with buffers; control your execution both through monitoring the actual use of buffers and by monitoring planned load on critical resources; when you strive to increase sales dramatically be ready to elevate the capacity; simplified-drum buffer rope (SDBR) is effective and simple to use; buffer management is critical for maintaining the right priorities in highly dynamic environments; planned load is effective for monitoring the capacity levels of critical resources and the advantage of adding full shifts rather than overtime is by keeping the appropriate amount of protective capacity of non-constraints in place.
Schragenheim, E. (2008). Throughput accounting - Its past, present, and a vision for the future. TOCICO International Conference: 6th Annual Worldwide Gathering of TOC Professionals, Las Vegas, NE, Goldratt Marketing Group.
This presentation provides a brief history of throughput accounting (TA), its present and future. The emphasis on product costing as the basis for traditional decision making is discussed. TOC offers an alternative for decision making with the use of the simple measures of throughput (T), inventory (I), and operating expense (OE), the five focusing steps and decision rules based on throughput per constraint unit. Some benefits and limitations are discussed. Problems with the use of delta T and delta OE are discussed as is the problem of stochastic environments (reality) and streams of periodic delta T and delta OE. The concepts of internal constraint, weakest link, logistical control point, etc. are presented. Each decision should not be judged based on its own merit but in reference to the whole system (sales and capacity). With respect to uncertainty two different states should be analyzed: the reasonable optimistic approach and the reasonable pessimistic approach. Some ingredients for the proposed decision-making system are proposed.
The idea of using money and time together have been raised by Eli Goldratt for quite a long time, but eventually did not fully enter the existing TOC applications. On top of using them as performance measurements, value-days were used in the 'flush' concept as a way to assess the desirability of investments. This concept also practically disappeared from the TOC actual practice. Do TDD and IDD truly work? Are BOTH equally important? Is the assumption that money and time are different dimensions true? Does 'flush' give better judgment of investment than net-present-value (NPV)? How do we explain that such concepts that look so prominent have few implementations?
Schragenheim, E. (February 5th, 2011). The flaws of both cost-per-unit and T/CU as critical information for a variety of decisions. TOCICO Webinar Series. TOCICO, Theory of Constraints International Certification Organization.
Concentrating on the specific area of decisions where management accounting has a devastating impact. The webinar would first inquire the real faulty assumption behind the concept of 'cost-per unit'. Understanding the flaws of the concept is a key to understand the current reluctance of replacing cost-per-unit with something else. But, does the current BOK of TOC offer a full support to the decisions currently supported by the 'cost-per-unit'? The webinar would discuss some common misunderstanding of the TOC concepts, notably how the T/CU might lead to wrong decisions. Thus the boundaries of the current knowledge of TOC regarding throughput accounting would be properly understood, and the difficulty in providing a wider support to these decisions will be discussed in order to pave the way for a direction of solution. The role of uncertainty in such decisions would be brought up. The impact of the current lack of tools to support those decisions would be demonstrated by a leading example. In this series Eli Schragenheim (the other Eli) wishes to think aloud on how TOC guides us to be better decision makers. The most interesting question to be dealt in the series is what 'hard decisions' are and how to make them 'not-too-hard decisions'? There are two different categories of causes for the difficulty to arrive to a clear decision: complexity and uncertainty. Complexity is nicely handled by TOC through focusing and outlining the cause-and-effect relationships of the most critical elements. In itself this is already a valuable addition to the work of Herbert Simon, another influential figure on management. Uncertainty is another element where TOC has provided certain solutions for some specific cases, but, yet, does not provide a generic way to systematically deal with uncertainty.
Schragenheim, E. and K. Kothekar (2013). Implementing the process of high level decision making - A case study. TOCICO International Conference: 11th Annual Worldwide Gathering of TOC Professionals, Bad Nauheim, Germany, Theory of Constraints International Certification Organization.
One year after Eli Schragenheim has presented his vision within the Goldratt Foundation day, comes the demonstration of the proposed process for a manufacturing company producing files and drills, JK Files (India) Limited. The previous presentation was fully theoretical, pointing to a way in the future, without demonstrating real management dilemmas and how the process supports the decisions by surfacing the basic assumptions and how they are translated into bottom line results. Eli Schragenheim and Vector Consulting Group collaborate to materialize the vision and provide the TOC community with a demonstrated process of a case study. In this 30 minutes presentation Eli and Kiran would show several critical high level specific business dilemmas and how they have been analyzed, using the expanded form of throughput accounting of last year.
Shoemaker, T. and R. Reid (2010). Quantifying throughput in public sector organizations. TOCICO International Conference: 8th Annual Worldwide Gathering of TOC Professionals, Las Vegas, NE, Goldratt Marketing Group.
We present an approach to measuring throughput in ‘not-for-profit’ organizations seeking to improve their goal of citizen/ customers satisfaction. It employs widely-used survey tools to identify service performance gaps. The unambiguous throughput metric produced quantifies customer satisfaction (analogous to money in ‘for-profit’ companies) allowing focused improvement decision making. Participants learn to create customer-satisfaction throughput metrics for service organizations through hands-on application of this win-win approach; thereby helping to expand the TOC Body of Knowledge.
Recently, an executive of a major corporation said, you can’t explain your way out of a situation that you behaved yourself into. Every company has to remember that if you want the right behaviors throughout your organization then you must have the right measures throughout your organization. When measures conflict, behaviors conflict and when behaviors conflict waste is generated. Learn a process for exposing conflicting policies, measures and work practices and how to generate win-win solutions for both the organization and its individuals. Learn how to utilize the right measurements as real-time feedback of the health of any system or sub-system and answer the five key questions to direct individual action. Leave with an innovative, yet practical, business solution for maximizing the ROI equation in your company. This session is a must for senior leaders.
Smith, D. and M. Reynolds (2005). TOCICO finance & measurements exam review workshop. TOCICO International Conference: 3rd Annual Worldwide Gathering of TOC Professionals, Barcelona, Spain, Goldratt Marketing Group.
This presentation provides an overview of the content of the theory of constraints throughput accounting and measurements examination.
The presentation describes the use of the thinking processes (TP) to recreate trust and mutual commitment; the processes and projects management model; and experienced-based versus TOC-based decision making in a family-owned bottler in Brazil. The bottler had a severe cash shortage problem. The strategic direction was provided by Dettmer’s strategic navigation model. The use of the TP of the strategy and tactics tree, the current reality tree, the future reality tree, prerequisite tree, etc. is described. The evaporating cloud was used extensively to understand the chronic conflict of the franchisor and the bottling company. Assumptions and injections were provided and supporting injections surfaced. Throughput accounting and sales and marketing solutions were implemented.
van der Zel, K. (2012). Hyde Park session – Why the demand for TOC practitioners is about to go from an all-time low (per capita) to an all-time high. TOCICO International Conference: 10th Annual Worldwide Gathering of TOC Professionals, Chicago, Il, Theory of Constraints International Certification Organization.
This presentation demonstrates how TOC can be used to rescue failing companies from bankruptcy. A company that has broken a bank loan covenant or is facing bankruptcy or liquidation has proved that it has failed to achieve the goal of a business – to make money. Fast action, a solid financial model and the correct focus is required to save at least a part of the company.
Zephro, C. (2008). Implementing throughput accounting at a multibillion dollar high tech company. TOCICO International Conference: 6th Annual Worldwide Gathering of TOC Professionals, Las Vegas, NE, Goldratt Marketing Group.
This presentation describes the implementation of theory of constraints accounting at Seagate Technology. Seagate is the world’s leading provider of hard disc drives; provides storage solutions for enterprise, desktop, mobile computing, consumer electronics and retail markets; has ownership and vertical integration of critical technologies (heads, media and motors); has approximately 54,000 employees; etc. Throughput accounting (TA) provides explicit consideration of the role of constraints; profitability analysis at the system level instead of gross margin analysis at the product level; considers the production process as a single system; and avoids the cost conundrum. The presentation defines the basics of TA. Seagate uses a web portal for TA with the primary users Sales, Operations and Planning to identify those drives that have high yield, spend moderate time at the constraint and have high throughput. Decisions related to product emphasis, pricing, customer requests, product planning and rework, waterfall, or scrap. Common questions and answer concerning TA are provided.