Goldratt, E. M. 1990. The Haystack Syndrome: Sifting Information Out of the Data Ocean. Great Barrington, MA: The North River Press.

Goldratt, E. M. 1990. What is this Thing Called Theory of Constraints and How should it be Implemented? Croton-on-Hudson, NY: North River Press, Inc.

Goldratt, E. M. and Cox, J. 1984. The Goal. Great Barrington, MA: The North River Press.

Goldratt, E. M. and Cox, J. 1992. The Goal: A Process of Ongoing Improvement. 2nd revised edition. Croton-on-Hudson, NY: North River Press, Inc.

Jacob, D., Bergland, S., and Cox, J. 2009. VELOCITY: Combining Lean, Six Sigma and the Theory of Constraints to Achieve Breakthrough Performance. New York: Free Press.

Motorola University. 2008. Six Sigma through the Years. http://www.motorola.com/content. Ohno, T. 1988. Toyota Production System: Beyond Large-Scale Production. New York: Productivity Press.

Sullivan, T. T., Reid, R. A. and Cartier, B. 2007. TOCICO Dictionary. http://www.tocico.org/?page=dictionary Womack, J. P. and Jones, D. T. 1996. Lean Thinking. New York: Free Press.

About the Author.

Since 1986, AGI-Goldratt Institute has enabled organizations to better align the way they operate with what they are trying to achieve-strategic bottom-line results.

AGI is the birthplace of constraint-based techniques and solutions for business success.

Many organizations and consultants trace their roots back to AGI not only for TOC, but also for how TOC integrates with other improvement methods.

AGI provides its clients with rapid, bottom-line results with what it calls VELOCITY-a powerful business approach combining speed with direction. VELOCITY consists of three pillars: TOC, the system architecture; TOCLSS, the focused improvement process; and SDAIS, the deployment framework.

SDAIS (Strategy-Design-Activate-Improve-Sustain) begins with creating and then executing the strategic roadmap to ensure business processes are designed and aligned to achieve the strategy. Oncedesigned, the business processes are activated to allow the organization to operate in a stable, predictable manner with less investment and organizational churn.

Once stable, focused system improvements are applied to increase sustainable bottom line results. Execution Management tools and transfer of knowledge enable each aspect of SDAIS and serve as the foundation for self-sufficiency and sustainment.

AGI has expertise in TOC, TOCLSS, and SDAIS, with years of experience adapting each of these elements to meet the unique needs of its clients, regardless of size or industry.

AGI excels at leading organizations through successful business transformations by providing business assessment, implementation support, execution management tools, training, and mentoring.

We are motivated by making the complex manageable and enabling our clients' self-sustaining success.

CHAPTER 37.

Using TOC in Complex Systems

John Covington

Introduction.

The purpose of this chapter is to give the reader some ideas on how to use TOC thinking to address and improve performance of complex organizational systems.

What is a complex system? Complexity is in the eyes of who is looking at the issue and their perception. What appears to be complex to one person might appear simple to another. In order to be an effective problem solver you must be able reduce any system down to its simplest components, which may mean redefining the system. I spent a lot of my industrial career working in chemical plants. There are thousands of issues in a large continuous flow process facility-computer controls, raw material variability, operator training, sludge buildup inside a heat exchanger, hundreds of control valves, wear and tear on equipment, scheduling of rail cars, EPA regulations, etc. There are many details and tons of data. It can appear very complex. How does one ever get their arms around it all?

All systems transform something from one state of being to another. For example, you may have a chemical plant that converts air, sulfur, and water into sulfuric acid. The simplest definition of the system might be a box where sulfur, air, and water are going into the box and coming out of the box is sulfuric acid and byproducts. Perhaps you can look at a university as one where people are transformed from one state of knowledge to another. One can then begin to add detail sufficient to describe the system adequately so it is suitable for solving. What are the dependencies and their sequencing necessary to achieve the purpose of the system? Those questions must be answered before you attempt to find a solution.

I have been using Theory of Constraint (TOC) concepts to solve problems since the early 1970s. I did not call it the Theory of Constraints then, I called it a material and energy balance. I was educated as a chemical engineer and early on, our professors instructed us to: 1. Define your system.

2. Determine the bottleneck.

Copyright 2010 by John Covington.

Not much has changed from then to now, and essentially that is how one should attack a complex system-define the system and determine the bottleneck.

Again, all systems, whether complex or not, transform something from one state to another. Perhaps the best way to explain this topic of providing solutions to complex system problems is through three examples of complex organizations: 1. A conglomerate that transforms steel rods into "sucker rods" for the oil industry.1 In this example, we will redefine the system, find the current logistical constraint of the new, better-defined system, and then address the mindset that would be an obstacle moving forward.

2. A company that makes the components of front wheel drive shafts in three different plants then assembles them in a fourth plant. All plants are scheduled by their competing customers. This case illustrates how important it is in complex systems to define the system properly. Get this step wrong and, at best, you have added a lot of time to reaching a solution, and at worst, you never address the real issues.

3. An organization that converts Non-Disciples into Disciples. This case provides a different view of Throughput being a nonprofit service provided or an intangible good. If a TOC mindset can address an issue as intangible as a Disciple, it can address anything.

These three cases are used to illustrate the complexity of the organizational environment and the simplicity of the solutions needed to achieve success. After the cases, I provide a summary listing the major insights gained from my experiences in these and other complex environments.

We Need More Sucker Rods!

Introduction.

In 2007, my good friend Jeff Bust became president of the Energy Group (EG) of Dover Corporation. Dover is a conglomerate with over $7 billion in sales, with the Energy Group making up about $500 million. In Jeff's group, there were two companies that made sucker rods: Norris Rod, located in Tulsa, Oklahoma and Alberta Oil and Tool (AOT), located in Edmonton, Alberta.

A brief discussion of the culture within many conglomerates is appropriate. Conglomerates buy and sell companies and have them under one big umbrella. Many conglomerates want to preserve an individual company's identity as they feel that independence causes them to perform better. The down side of this is that when you have two companies that produce the same thing and they are both being measured by their own profit and loss statement, then there is an opportunity for competition rather than collaboration. This was the case at Dover as the two companies within EG were struggling to keep up with market growth. Jeff felt Norris and AOT were working on the wrong things, were having quality problems, and there was minimum collaboration between the two companies.

Jeff needed more sucker rods and he needed them fast. There was no time to invest a lot of additional capital in equipment because EG needed to take advantage of the market when it was in an up cycle. EG also did not want to commit new capital to an old process of producing sucker rods.

What is a sucker rod? Most of you have seen an oil well that looks like a giant horse head moving up and down. Attached to the horse head is a rod that goes down inside a casing that may go 2000 feet or more into the earth. Each rod is about 22 feet long, so you need a boatload of them to reach some oil thousands of feet down. At the end of the rod, a device captures the oil and starts it on its journey to the surface where it is collected and sold for a small fortune.

Sucker rods come in various diameters, strengths, and lengths and the companies had nearly 100 stock keeping units of different sucker rods.

There are five basic steps to produce the rods: 1. Straighten the rods from the steel mill.

2. Go through a forging operation where the ends of the rods are formed.

3. Heat treat.

4. Machine/thread.

5. Paint.

At Chesapeake Consulting, we have not found too many complex systems that we could not make simple just by using the five focusing steps (5FS); however, we have added what we consider to be two important prerequisites: Define the system and its purpose.

Decide how to measure it.

For this assignment, we were given the mission to: Get more total Throughput in order to take advantage of market demand.

Develop a more unified strategy.

Create some synergy and collaboration between AOT and Norris.

Therefore, the system on which we worked was the combined operations of AOT and Norris. Although the two plants are physically separated by 1000 miles, we looked at them as if they were one facility under the same roof.

Some History and What We Learned

Both Norris and AOT had done an excellent job of maintaining their corporate cultures, perhaps to a fault, and both were good performers. Dover has five major financial and operational criteria on which they judge companies and both companies were exceeding the goal on four of the five. The market was good, so both companies were showing decent profits, and executives were getting nice bonuses. In addition, the longevity of the individual company presidents was much longer than the longevity of a division president. These two companies had survived many people that held the position of my friend Jeff. The major point here is that there was not a lot of incentive for either company to change. There was also a history of union friction at Norris and intra-corporation competition.

In Fig. 37-1, the general process flow was raw materials to straightening, to forging to heat treat, to machining, to paint, to finished goods, and then shipping to customers.

The physical constraint of the individual plants and for the entire system was the heat-treat operations. The maximum Throughput that the EG could produce was the total of the heat-treat outputs of Norris and AOT. For a variety of reasons, heat treat was the logical place to have the internal physical constraint, so we made no effort to relocate it. Heat treat was the highest capital investment, it was relatively easy to buffer, and it was the process step where the company felt they added the most value; a step they would not consider outsourcing.

FIGURE 37-1 Combined operations of Norris/AOT.

At AOT, they had nearly balanced capacity; therefore, there was inadequate protective capacity in forging and straightening to keep heat-treat supplied at full capacity. AOT had already applied Lean and Six Sigma tool sets and there was very little opportunity for additional capacity without making a capital investment. AOT had been working on a process of ongoing improvement for several years and were well down the path to world-class performance (whatever that means). They were using statistical methods to determine when dies needed changing and a forging changeover took less than an hour, whereas at Norris it might take over a day. There was not a lot of low-hanging fruit at AOT. In addition, a friendly culture existed at AOT; workers would smile and greet their supervisors and it was obvious workers and managers were engaged in their work.

Norris had plenty of forging equipment capacity but most of it was being wasted through sloppy operations. Although they had begun a Lean and Six Sigma journey, they had not scratched the surface and they had not focused their efforts. TOC clearly indicated that improvement efforts needed to be focused at the Norris forging process in order to gain the protective capacity to supply the combined heat-treat operations of Norris and AOT. Norris had a tendency to have long runs of rods through forging to avoid long setups. Of course, this traditional philosophy of long runs, a focus on efficiency and minimization of setup costs led to higher than desired inventory levels and consumed valuable protective capacity to make the wrong stuff.

In order to have the proper buffer in front of heat-treat operations at AOT and Norris, the system had to get more protective capacity out of forging at Norris.

The potential impact from implementing TOC was tens of millions of dollars in additional sales and reduced Operating Expense without any additional capital.

Let's pause for a second. We have taken a complex system composed of two companies under the same organizational umbrella with many culture and market issues and narrowed our focus down to one department-the forging operation at Norris. We will start there knowing that what we do will spread to the rest of the organization.

What Change was Needed

Through an assessment, we found some of the undesirable effects (UDEs) were the following: 1. EG is losing sales because of extended lead times. This also had a long-term negative effect as the company wanted to remain being "the first one called." In this industry, the phone rings and someone needs sucker rods right now or in a short lead time. The sooner a pumping station is on line, the sooner money starts flowing to the oil company. If EG cannot satisfy the customer's order, then the customer calls the next supplier on its list and EG loses market share.

2. High scrap rate exists.

3. Hostile work environment exists at Norris.

4. Opportunities are missed to grow market share.

5. High inventory (finished goods and raw materials) exists at Norris.

The core physical issue was the forging operation at Norris. If we could wave a magic wand and make Norris forging look and perform like AOT forging, then sales would instantly increase and some other good things might happen also.

How to Cause the Change