Manufacturing Breakthrough Blog
Friday October 23, 2015
In my last post the new CEO, with the assistance from his staff, began constructing their company’s Goal Tree/IO Map. The CEO felt it was very important for his staff to understand Throughput Accounting, so he presented the basics of TOC and TA. It was important for his staff to understand the concept of the system constraint as well as the basics of TA before beginning to build the Goal Tree/IO Map. The team established the following Goal and three Critical Success Factors before breaking for lunch.
The Case Study Continued
When his staff returned from lunch, they reviewed what the CEO had presented on Throughput Accounting (TA), just so it was fresh in their minds as they began again to review and construct their Goal Tree/IO Map. The CEO started, “So, in order to maximize profitability now and in the future, we must have maximum throughput, minimum operating expense and minimum investment which is mostly inventory.” “Are there any others?” he asked. His staff looked at each other and agreed that these are the three main CSF’s. The CEO knew that what was needed next were the corresponding Necessary Conditions (NCs) so he started with, “In order to have maximum throughput, what do we need?” His CFO put his hand up and said, “We need to maximize our revenue.” Everyone agreed, but the Junior Accountant immediately raised her hand and said, “That’s only half of it!” The CEO looked at her and said, “Tell us more.” She said, “Well you explained that Throughput was revenue minus Totally Variable Costs, so minimal totally variable costs has to be a Necessary Condition too.” The CEO smiled and said, “So, let me read what we have so far.” “In order to have maximum Throughput, we must have maximum revenue and minimal TVC’s.”
The CEO continued, “In order to maximize revenue, what must we do?” The Operation’s Manager said, “We must have satisfied customers,” and before he could say another word, the Marketing Director added, “We must also have sufficient market demand.” The CEO smiled again and added these two NC’s to the Goal Tree/IO Map.
The CEO then said, “Let’s stay with the satisfied customers NC, in order to have satisfied customers, we must have what?” The Quality Director raised his hand and said, “We must have the highest quality product.” The Logistics Manager added, “We must also have high, on-time delivery rates.” And before the CEO could add them to the tree, the Customer Service Manager added, “We must also have a high level of customer service.” The CEO smiled again and said, “Slow down so I don’t miss any of these everyone.” Everyone laughed. The CEO looked at the lower level NC’s for satisfied customers and asked if they needed anything else. Everyone agreed that if they had the highest quality product with high on-time delivery rates and a high level of customer service, then the customers should be highly satisfied.
The CEO decided to continue on beneath the CSF for maximum throughput and asked, “So what do we need to supplement or support sufficient market demand?” The CFO said, “We need a competitive price point and by the way, I think would also help satisfy our customers.” The CEO added both NC’s and connected both of them to the upper level NC of sufficient market demand. The CEO stepped back and admired the work they had done so far, but before he could say anything, the Sales Manager said, “If we’re going to have sufficient market demand, don’t you think we also need effective sales and marketing?” Again, everyone nodded their heads in agreement, so the CEO added that NC as well.
Before the CEO could say anything more, the Junior Accountant raised her hand and added, “I was thinking that three of the ways we could have effective sales and marketing would be related to the three lower level NC’s assigned to satisfied customers. I mean, can we do that in a Goal Tree/IO Map?” The CFO was the first person to speak and he added, “I think that’s a fantastic idea!” The CEO thanked her and added the connecting arrows.
The CEO then said, “Great job so far, but what’s a good way for us to minimize TVC?” Without hesitation, the Quality Manager said, “That’s easy, we need to minimize our scrap and rework.” The Quality Manager then said, “I think that would also be an NC for one of our other CSF’s, minimum operating expense.” Everyone agreed, so the CEO added both the NC and the second connecting arrow. Once again the Junior Accountant raised her hand and added, “I think that we should add another NC to the CSF, minimum operating expense, and that we should say something like optimum manpower levels and maybe also minimized overtime.” The CEO smiled and added both of the NC’s to the tree.
“So what about our CSF, minimum investment?” asked the CEO. The Plant Manager raised his hand and said, “How about minimized WIP and Finished Goods inventory?” The CEO looked for objections, but when nobody objected, he added it to the tree. He then asked, “What about an NC underneath that on?” The Plant Manager looked at him and said, “We need to synchronize our production around the constraint and demand.” “What do you mean?” asked the CEO. “I mean we need to stop producing parts on speculation and start building based on actual orders. I’ve been reading about TOC’s version of scheduling referred to as Drum Buffer Rope and I think we need to move in that direction,” he added. And with that, the CEO added his comments to the Goal Tree/IO Map.
When he was finished adding the new items to the Goal Tree/IO Map, he turned to the group and began clapping his hands in appreciation for their effort. He explained, “I’ve been doing this for quite some time now, but I have never seen a group come together more than you have today.” He added, “I was a bit apprehensive when we began today that maybe some of you would push back and not contribute, but I was totally wrong.” The CFO raised his hand and said, “For me, I have never seen this tool before, but going forward I will be using it a lot. I’m very happy to have been here today to complete this exercise.” Everyone else agreed with him. The CEO then said, “Ladies and gentlemen, this exercise is not over yet.” “What else is there to do?” came a question from the CFO. “We’ll get back together tomorrow morning and I’ll explain the next steps,” he explained.
So there it was, a completed Goal Tree/IO Map that everyone was proud of. “But what will we do next?” everyone thought.
In my next posting we will take the completed Goal Tree/IO Map and show you how to turn it into an improvement plan. As always, if you have any questions or comments about any of my posts, leave me a message and I will respond.
Until next time.
 Dettmer, H. William. The Logical Thinking Process: A Systems Approach to Complex Problem Solving. Milwaukee, WI: ASQ Quality Press, 2007