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Posts Tagged Theory of Constraints

Go Big or Go Home!

“Geoff Forester photograph, courtesy of the New Hampshire Community Loan Fund”.

Go Big or Go Home. This was the title of an article by machine tool builder Mori Seiki about one of their customer’s decisions to buy some large pieces of equipment to give them a competitive advantage. The concept relates to much more than machine tool size.

In manufacturing, continuous improvement is a mantra of the Lean Manufacturing crowd. Small, steady steps in improving your day to day activities can lead to increased productivity, elimination of waste, and improved profitability. However, making a decision to employ these concepts in your company is not a small step. It is a big decision. It is a major cultural  transformation and a multi-year, if not a permanent commitment to a new operating philosophy. Going Lean is going big. The same could be said about committing to an ISO 9001 quality system. Or employing Theory of Constraints. Or adopting Quick Response Manufacturing.

Going big also relates to capital investments, new facilities, acquisitions, developing new products, or entering new markets. Although business people are  characterized as conservative by nature, making big decisions often requires bold risk taking and an audaciousness not present in the ranks of most corporate managers. Business dynasties aren’t created by just crunching numbers and analyzing data.  Mixing number crunching with guts and vision is what it takes to  make things happen. To paraphrase New Hampshire native son, newspaper editor Horace Greeley, “Go big, young man, go big”.

 

Are You Ready for “The Sixth Wave”?

“Geoff Forester photograph, courtesy of the New Hampshire Community Loan Fund”.

No, I’m not talking about surfing. I’m talking about an economic wave that’s in its early stage of emergence and will drive our economies for the next 50 to 60 years. In the 1920s, a Soviet economist, Nikolai Kondratiev, studied capitalist economies and noticed that they went through repetitive cycles of expansion and contraction. These  “Kondratiev Waves” last about 50 years. He identified the first wave as occurring in the early 18th century. His ideas eventually lead to his execution in the late 1930s, but other economists continued his work, trying to understand the reasons for these cycles. Although this theory is not universally accepeted, it does offer insight into societal, political, and technological changes that have occurred throughout history.  In the 1980s, Cesare Marchetti offered supportive research when he wrote about society as a learning system and decribed Invention/Innovation Cycles whose ebb and flow correspond to these economic waves.

The Kondratiev Wave consist of four periods. As liquidity expands in the initial phase of the cycle, commodity prices rise reflecting the increasing business activity and inflation. As business activity and inflation accelerate, speculators bid up commodity prices due to their fear that inflation will continue to accelerate. After the rate of inflation peaks and starts to fall, the acceleration premium is removed from prices. Thus, commodity prices start to fall despite continued but slowing inflation, a trend called disinflation. At the same time, a change in psychology away from fear and toward feelings of relief and hope induces people to channel the excess purchasing media created during disinflation into bidding up the prices of investment assets such as stocks. Because inflation continues, the wholesale prices that manufacturers charge for finished products, the retail prices that stores charge for goods and the levels of wages that employers pay for labor all continue to rise but at a continously lesser rate, following the rising but slowing trend of business activity and inflation. Near the end of the cycle, the rates of change in business activity and inflation flip to zero. When they fall below zero, deflation is in force. As liquidity contracts, commodity prices fall more rapidly, and prices for stocks, wages and wholesale and retail goods join in the decline. When deflation ends and prices reach bottom, the cycle begins again.

Most who subscribe to the Kondratiev Wave theory identify our current economic situation as being in the last phase of the fifth wave cycle. The authors of The Sixth Wave have suggested that the emerging wave will be powered by the economics and technology of scarcity. Those who can do more with less and reduce waste will prosper. Industrial trends such as Lean Manufacturing, Six Sigma, and Theory of Constraints are all associated with elimination of waste, reduction of variability, and improvement of production velocity. These practices support a Sixth Wave mentality. 

At Graphicast, we recently described our experience with a customer who worked with us to take an expensive assembly of four machined components and turn them into a single, economical casting that was stronger, more rigid, and less wasteful to produce. There are many more opportunities to reduce costs by redesigning and rethinking your needs, than by just making the old design “cheaper” by outsourcing to a low labor cost area. In the long run, the better design is the most productive way to succeed in the Sixth Wave economy.

Good luck getting ready for the next wave. We may not yet be out of the Kondratiev “winter”, but prosperity awaits those who embrace the upcoming “spring”.

Explaining Theory of Constraints at the Pancake Griddle

“Geoff Forester photograph, courtesy of the New Hampshire Community Loan Fund”.

I’ve been a strong proponent of Theory of Constraints as one of the best philosophies for running manufacturing operations. TOC gives you a perspective that helps you focus on constraints to flow in your operation and provides methods on how to deal with them to improve flow.  This focus on “throughput” rather than “costs” is transformative and requires a different thinking process than used in the cost driven world. I had a good lesson in constraint identification and throughput improvement while making pancakes yesterday.

Imagine, as you will, that I have a market for my product. The demand is time dependent (my market is hungry and wants to eat – NOW) and satisfaction limited (they will eventually get their fill, and the demand will subside). Getting product to the market to fulfill this demand cycle is critical to my business. I have plenty of raw material (my pancake batter), but a constrained production resource, my cast iron griddle. My griddle is fixed in size, and the energy input to the griddle is limited by batter chemistry and the batter load (the more batter on the griddle, the more energy required to produce a pancake, but too high an energy input, and the pancakes burn). If I had a lot of WIP (several pancakes on the griddle), I found that the production time increased (due to the higher energy requirements and temperature variation on the griddle), the quality went down (undercooked or overcooked sections on a pancake), and I couldn’t supply my demand on time. When I reduced WIP to one pancake at a time, my pancake production velocity or “throughput”  went up, quality improved, and I met the demand.  Making one pancake at a time was actually faster than trying to make a bigger batch of pancakes at once (the lower unit cost mindset).

In the factory, we know that smaller batches and lower WIP  increase production velocity. Higher velocity means higher sales revenue and higher throughput. All the lessons of the factory floor revealed while making a Sunday morning breakfast!

Old Machines Making Money

“Geoff Forester photograph, courtesy of the New Hampshire Community Loan Fund”.

I just read an interesting article on how a number of machining houses are making money and growing their businesses using older equipment. What sets them apart is their attitude toward business, not modern, high productivity equipment or low cost labor. They cross train their people, they eliminate wasted time and effort, they pay fair wages and provide benefits, they treat their customers and suppliers well. If you ever read Goldratt’s book, The Goal, you’ll recognize these businesses. They’re doing the same thing Alex Rogo did in his factory to turn it around. All these machining houses are applying a Theory of Constraints mentality to their operations, even if they don’t recognize it as that. Congratulations to them for their insight and commitment to their businesses.

Is Lean Manufacturing in the Job Shop Undergoing a Transformation?

“Geoff Forester photograph, courtesy of the New Hampshire Community Loan Fund”.

As a small job shop owner, I’ve always looked at lean manufacturing as a collection of management and manufacturing tools unified by an overarching philosophy. However, what Toyota may have developed for a large, integrated manufacturing company does not always translate well into a job shop environment. I’ve felt that in a job shop, you need to pick the appropriate lean tools or your lean implementation will fail, as the shop floor quickly decides on the relevancy of any program introduced to change the manufacturing environment. If the tools make sense, they will be embraced. Doing this, we’ve successfully employed a number of lean tools over the past ten years. You can pick from the lean buffet if you know what you want to do and how you will measure the results. 

In the past few weeks, I’ve read one article on the changing economy’s negative impact on lean, another on the need for small companies to focus on agility instead of lean , and then an argument against both these opinions. I am a firm believer that lean manufacturing needs to adapt to the circumstances, not the other way around. Lean principles and philosophy can be applied in many different environments, but the use of lean must evolve from first principles to fit that environment. The same concept should also be applied to six sigma and theory of constraints, both of which we also employ at Graphicast. In our operation, we use theory of  constraints as our overarching management philosophy, with lean and six sigma methods employed to reduce waste and process variation. We use throughput accounting methods as our mangerial accounting platform to measure the financial impact of our changes.

I’m pleased to see people openly discussing the difficulties of employing “big company” methods in the job shop, and the need to adapt these methods to the small shop to gain the greatest benefit. We need more voices in this discussion,

Manufacturing Lessons from a 150 Year Old Factory

“Geoff Forester photograph, courtesy of the New Hampshire Community Loan Fund”.

I had the pleasure of touring the 150 year old Beech River Mill last Friday. This company, a manufacturer of custom made wooden shutters and doors,  is the last mill operating on the Beech River, a short river flowing through Ossipee, New Hampshire. Mills  have been on the Beech River since the late 1700s, and many building foundations remain along the riverbank. The mill was busy, fulfilling orders for many building restoration and custom home projects throughout the northeast.  The operating floor, still residing on the original wooden planks, was an interesting mixture of modern and Victorian era woodworking equipment. Of particular interest were the comments from the workers. Although the Victorian equipment had a dozen oiling ports on it that needed to be filled before the machine started, as long as the machine was lubricated and the blades were sharp, the machinery worked beautifully. If a component wore out, a visit to the local blacksmith generally solved the problem. The modern equipment, with its computers, sensors, and other technologies is far more sensitive. Breakdowns are more frequent and repairs are more difficult and expensive.

Lean manufacturing is about eliminating waste.  Sometimes that waste  is not apparent. Modern, high productivity equipment would seem like an easy choice to eliminate  labor intensive, lower production rate equipment.  And sometimes it is. However, aren’t  higher downtime rates and delays in repairs of the modern equipment wasteful? Maybe slower and steady is the least wasteful way to operate some of the steps in your production. You must look at the entire operating system and the interaction of all the components on the final product and the output of the factory before you make any changes. How many of us have heard the regrets of manufacturers who bought equipment that didn’t work the way they thought it would?

Proponents of Goldratt’s Theory of Constraints look at the entire manufacturing system and its throughput in ways that make these types of decisions less troublesome and more effective. In fact, in Goldratt’s popular business novel, “The Goal”, an old piece of equipment saved the day for a factory trying to eliminate a production bottleneck.  As the economy improves and you’re looking to expand, step back and consider a Theory of Constraints approach to your situation before you make any decisions.

Dartmouth Engineering Graduate Students are Getting Ready for the Real World

“Geoff Forester photograph, courtesy of the New Hampshire Community Loan Fund”.

I just finished my fourth yearly visit to Dartmouth College to speak to their Master of Engineering Management students about running a manufacturing company. These students are in a great program that prepares them for real world situations. All students go through certification for Six Sigma Black Belt and are well versed in principles of Lean Manufacturing and Theory of Constraints. We had the pleasure of working with two of their students on research projects here at Graphicast. They helped us solve a recurring quality issue in casting and developed a method for reducing set up times in CNC machining. I always enjoy my time at Dartmouth and hope we can work with their students on other projects in the future.

Graphicast Featured in Business NH Magazine’s Best Company Issue

Graphicast-Best-Company-Cover

A full page of Business NH Magazine’s December 2009 issue is devoted to Graphicast’s successful quest to become a Best Company to Work For in New Hampshire in 2009.

Check out the article here

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Taking Innovative Casting Technology to Your Bottom Line™

Graphicast Inc.

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Jaffrey, NH 03452
phone: 603-532-4481
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