The Maintenance Center's results over the last seven years have been phenomenal. Some of the results were chronicled in the March 2005 APICS magazine. They were the first recipient of the U.S. Department of Defense's Robert Mason award in 2005 and again in 2007; and were the first recipient of the TOC International Certification Organization (TOCICO) Award for Excellence in 2008. They reduced the cycle time of every one of the 20 major products they support by at least half and in some instances even more. They doubled the Throughput of the organization within an 18-month period without hiring any additional personnel. They have a very ambitious process of ongoing improvement in place, which is continually raising the bar. In summary, the productivity increased dramatically, they were making their promised delivery dates, and customer satisfaction was very high.

Summary and Discussion

All of the TOC solutions use the concept of time buffers to provide protection against variability in execution. Therefore, for the first time we have system and operational metrics that link to each other and can be used in conjunction with the three scheduling algorithms. These horizontal and vertical linkages are crucial and provide precise information on the effect every single element is having on the company. These metrics transcend all functional areas, allowing the area managers to better understand where the real priorities lie.

This approach de facto allows for building a unified scheduling algorithm for project management, production, and distribution requirements in an organization. It solves the longstanding dilemma of having to generate standalone schedules for individual parts of the organization vis-a-vis producing a synchronized schedule, thus providing the most benefit across the company or the entire supply chain.

First, one must have common metrics to measure how effectively each part of the enterprise is contributing to Throughput. Throughput is the rate at which each piece contributes to the output of value-added your organization generates and delivers to the market. In a for-profit organization, Throughput normally can be stated as the amount of money generated over a given period of time through sales, less the TVC. In a not-for-profit organization, Throughput could be the amount of an organization's value-added units produced per money expended over a given period of time. This approach provides the means of scheduling the many diverse functional areas and their resources in order to maximize Throughput.

In the planning and scheduling phases, all of the constraints in the organization are identified and leveraged to optimize the work flowing through the system. This pipelining is crucial and the key to producing the greatest Throughput. Therefore, this scheduling engine coordinates the projects, production, and distribution schedules by leveraging the constraints and synchronizing their efforts.

It also provides powerful and extremely effective tools for managing the inevitable variation encountered while executing the schedules. No longer restricted to continuously reacting and fire fighting, managers are given ample warning and visibility to the potential impact the variation may have on delivery dates. In most cases, the disturbance is identified quickly through BM before jeopardizing the schedules' control limits and corrective action is taken. The time buffers and BM allow management to know when they have to take action and, if so, precisely where they have to intervene. Of equal importance is now having real-time access to information, indicating when the system or schedule is in control and no action is required.

References

Alford, L. P. 1934. Cost and Production Handbook. New York: The Ronald Press Company.

Barnes, R. M. 1980. Motion and Time Study Design and Measurement of Work. 7th ed. New York: John Wiley & Sons.

Blackstone, J. H. 2008. The APICS Dictionary. 12th Edition, Alexandria, VA: APICS.

Brown, M. G., Hitchcock, D. E., and Willard, M. I. 1994. Why TQM Fails and What to Do About It. Burr Ridge, IL: Irwin.

Churchman, C. W. 1968. The Systems Approach. New York: Dell Publishing.

Corbett, T. 1998. Throughput Accounting. Great Barrington, MA: North River Press.

Goldratt, E. M. 1987. "Chapter 5-How complex are our systems?" Theory of Constraints Journal 1(5) New Haven, CT: Avraham Y. Goldratt Institute.

Goldratt, E. M. 1988. "Chapter 2-Laying the foundation," Theory of Constraints Journal 1(2), New Haven, CT: Avraham Y. Goldratt Institute.

Goldratt, E. M. 1990 . What's This Thing Called Theory of Constraints? Croton-on-Hudson, NY: North River Press.

Goldratt E. M. 1994. It's Not Luck. Great Barrington, MA: North River Press.

Goldratt E. M. 1997. Critical Chain. Great Barrington, MA: North River Press.

Goldratt, E. M. 1999. Goldratt Satellite Program Session 2: Finance & Measurements. Broadcast from Brummen, The Netherlands: Goldratt Satellite Program.

Goldratt, E. M. 2009. "Standing on the shoulders of giants." The Manufacturer. June. accessed Feb. 4, 2010 at http://www.themanufacturer.com/uk/content/9280/Standing_on_the_shoulders_of_ giants.

Goldratt, E. M. and Cox, J. 1984. The Goal: Excellence in Manufacturing. Croton-on-Hudson, NY: North River Press.

Hopp, W. and Spearman, M. 2000. Factory Physics. 2nd ed. New York: McGraw-Hill/Irwin.

Johnson, H. T. and Kaplan, R. S. 1987. Relevance Lost: The Rise and Fall of Management Accounting. Boston: Harvard Business School Press.

Rummler, G. A. and Brache, A. P. 1995. Improving Performance: How to Manage the White Space on the Organization Chart. 2nd ed. San Francisco: Jossey-Bass.

Schragenheim, E. and Walsh, D. P. 2004. "The distinction between manufacturing and multi project and the possible mix of the two," APICS Performance Advantage, February, 4246.

Sullivan, T. T., Reid, R. A. and Cartier, B. 2007. TOCICO Dictionary. http://www.tocico.org/?page=dictionary Taylor, F. W. 1911. Principles of Scientific Management. New York and London: Harper & Brothers.

Zandin, K. B. and Maynard, H. B. 2001. Maynard's Industrial Engineering Handbook. 5th ed. New York: McGraw-Hill.

About the Author.

After a successful career in leading large organizations including Director of Operations for a $5 billion enterprise and the Executive Officer for a $750 million aircraft overhaul and repair facility, Daniel Walsh founded Vector Strategies, a TOC-focused company. He and Vector Strategies are recognized experts in developing and implementing powerful strategies that quickly and dramatically improve market presence and profitability. He has worked with companies in the pharmaceutical, construction, engineering, manufacturing, aerospace, and defense industries. Numerous Fortune 100 companies are among his clients, including Textron, IBM, Caterpillar, Boeing, Lockheed, and the U.S. Department of Defense.

Daniel Walsh's success is based on his extensive experience as an executive and thought leader, as well as his development of innovative and cutting-edge systems architecture and value-added networking techniques. His focus is firmly grounded in the tenet that real and sustainable improvements in an organization must be measured on how successfully they increase profitability through value innovation.

His current efforts are focusing on developing synchronous enterprise value chain solutions in multiple industry sectors. His research and development is centered on identifying the need to identify and leverage the strategic constraints of the enterprise, which is the key to increasing Throughput. This culminated in the development of the Integrated Enterprise Scheduling (IES) solution engine. Initial empirical results from deploying the IES in a dozen large companies over a five-year period have been very promising. Many executives and thought leaders are convinced this may very well be the unified scheduling solution required for maximizing the profit of an enterprise-wide value chain.

Daniel Walsh has been on retainer to the Institute for Defense Analysis, a leading strategic think tank in Washington, D.C. and is a trusted advisor to many senior corporate executives. Currently he is a member of numerous corporate boards and in addition is chairman of the board of the Theory of Constraints International Certification Organization, which is dedicated to setting the standards, testing, and certifying competency in TOC.

CHAPTER 36.

Combining Lean, Six Sigma, and the Theory of Constraints to Achieve Breakthrough Performance

AGI-Goldratt Institute

Introduction.

As global competition continues to grow, the pressure to improve becomes more and more intense. Executives and managers face many challenges: increase sales, reduce cost, reduce inventory, accurately forecast future demand, find the next market breakthrough, and most of all survive! Although there are many ways to improve, many organizations have invested in at least one of the three most widespread methods of improvement-Theory of Constraints (TOC), Lean, or Six Sigma. In most cases, company experts have spent significant time mastering one of these three and spent time trying to show returns from their investment. As other methodologies came along, pressures shifted to using something else and came across as another program of the month. But for many, when the objective for all three is to improve the organization's performance, why did it come down to an "either-or" mentality? Why did some attempts at integrating the three not show the promised returns or end up being integrated in name only? Some of the reasons appear to be: 1. The methodologies were viewed as "tools in a toolbox," where each tool was perceived as best for particular uses.

2. Expertise in all methodologies was not available, making true integration impossible.

3. An effective integration process for the three methodologies was not developed.

Our purpose is to show how to effectively integrate these methodologies, but let's first provide a short overview of each of them.

Copyright 2010 by Avraham Y. Goldratt Institute, a Limited Partnership.

Lean

The origin of lean manufacturing in the United States can be linked to Henry Ford (the assembly line), Fredrick Taylor (industrial engineering), and Dr. Deming (father of quality management). In Japan, these concepts were refined and honed by Taiichi Ohno, Eliji Toyoda, and Shingeo Shingo to create what is now known as the Toyota Production System (TPS). As shown in Fig. 36-1, Taiichi Ohno once described the goal of TPS simply as to shrink the time-line from order to cash by removing non-value added waste, muda (Ohno 1988, 9).

Ohno identified seven types of waste. There are several ways to describe these "7 deadly types of waste" that occur in a system. The most common are: 1. Overproduction-producing more than the customer has ordered. Many times producing to forecast or batching to save setups can lead to over-producing.

2. Waiting-time when no value is being added to the product or service. High levels of inventory, people, parts, or information can lead to long non-value added waiting.

3. Transportation-the unnecessary movement of parts, moving multiple times, movement that does not add value. High levels of inventory, the layout of the system, and priority shifting are just a few things that can also lead to non-value added transportation.

4. Inventory-unnecessary raw material, work-in-process (WIP) or finished goods. "Stuff" we have made an investment in that the customer doesn't currently need. Long cycle times, "just in case" thinking, and flow issues can also add to inventory issues.

5. Motion-unnecessary movement of people that does not add value. Poor workplace organization and workplace design can lead to waste in motion. These motions at times can lead to serious health and safety issues.

6. Overprocessing-adding steps or processes that don't add value to the customer, thinking that continuing to work on something makes it a higher quality part or service. This is considered waste when the customer doesn't require that "extra" touch.

7. Defects-work that requires rework or, even worse, work effort that needs to be scrapped. Bad processes, equipment issues, and lack of in-process control can add to the defect problem. Obviously, the more "stuff" in the system, the higher the percentage of defects.

Recently, an eighth waste has become very common and that is the waste of not tapping into human creativity.

Logically you can see how over-producing can lead to contributing to all the other waste. All wastes can be associated with any environment, not just production. Understanding and identifying waste in the system can help target improvement efforts.

The titles, "Lean Manufacturing" and later "Lean Thinking" were coined in the United States by James Womack and Daniel Jones in the 1990s to describe the Toyota Production System (TPS) (Womack and Jones, 1996). Womack and Jones introduced us to the five principles of Lean: FIGURE 36-1 Goal of TPS.

1. Specify value.

As stated by Womack and Jones, "The critical starting point for lean thinking is value. Value can only be defined by the ultimate customer and it's only meaningful when expressed in terms of a specific product (a good or a service, and often both at once), which meets the customer's needs at a specific price at a specific time."

The question we must always strive to answer is, "Do we truly understand value from our Customer's Perspective-both Internal and External?"

2. Identify the steps in the value stream.

Value Stream Mapping is a process to detail and analyze the flow of material and information to bring a product or service to the customer. After identifying the entire value stream for each product, we can separate actions into value added (VA) and non-value added (NVA) activities. Value Added activities can be defined as something that the customer would be willing to pay for; an activity that changes the form, fit, or function of the product or service and is done correctly the first time. Non-value Added is something that takes time, resources, or space and does not add value to the product, and thus adds no value to the customer. Identifying the value stream will expose many NVA activities.

3. Create smooth flow.

When the value-creating steps are understood, the next step is to create continuous flow. Things like producing in small lots versus batching, putting machines in the order of the processes, pacing production to Takt time,1 and the application of lean tools all create smooth flow. Creating smooth flow can dramatically reduce lead time and waste.

4. Customer pulls value.

Once the first three principles are in place, we can now put a system in place that only produces at the rate of customer requirements, a "pull" system. This is the opposite of "push," releasing work into the system based on a forecast or a schedule. No one upstream will produce a good or a service until the customer downstream is ready for it.

5. Pursue perfection.

Lean says we must continually understand value through the eyes of our customer and refine our value streams to increase the flow based on customer demands. We want to move toward perfection. The process of improvement never ends.

Six Sigma

As shown in Fig. 36-2, Six Sigma has evolved from a metric, to a methodology, to a management system (Motorola University, 2008). Motorola is given credit for developing Six Sigma, but the statistical roots can be traced back to the 1800s when Carl Frederick Gauss used the normal curve for analysis and around 1924 when Walter Shewhart used control charts and made the distinction of special versus common cause variation and their link to process problems.

FIGURE 36-2 Six Sigma evolution.

The desired output of Six Sigma is to reduce defects, reduce cycle time, increase Throughput, and increase customer satisfaction by reducing variation in products and processes, thus giving an organization a competitive advantage.

Six Sigma as a metric equates to 3.4 defects per million opportunities (DPMO). Many companies use this metric to lead their defect reduction effort. Many improvement experts contend that most companies today work at a sigma level between 3 and 4. For example, if you are operating at a 3 sigma level, you are producing 66,800 DPMO; a 4 sigma level is 6210 DPMO. Reducing defects will obviously lead to higher customer satisfaction, lower cost of quality, increased capacity, and most important, increased profits.