32Accountants customarily carry costs to four significant digits to the right of the decimal so that aggregated totals from computing costs for many units will be more precise. For a more in-depth look at this issue, see Eden and Ronen (2007).

33$40$29.97 = $10; $10 100 units (90 for Product X and +10 for Product Y) = $1000.

3490 units for Product X and 50 units for Product Y.

35See the Throughput_Examples spreadsheet located at www.mhprofessional.com/TOCHandbook, cells CQ1: CZ40.

36Operating income would drop from $12,858 to $7,858, a decrease of $5,000, the cost of the change. See the Throughput_Examples spreadsheet, cells BV47:CF82 at www.mhprofessional.com/TOCHandbook.

37See the Throughput_Examples spreadsheet, located at www.mhprofessional.com/TOCHandbook, cells CH47:CP82.

38While recent cost and management accounting texts acknowledge TOC, attempt to define it, and recognize its connection to the contribution-margin-per-unit-of-constraint decision, they do not address the impact of a constraint on numerous other operating decisions such as make versus buy, adding or dropping product lines, or special orders.

39Boeing has used this approach upon occasion to clean up its WIP inventory (Henkoff, 1998; Skapinker, 1998).

40Since it is merely a timing issue, if inventory ever increases back to original amounts the income discrepancy will disappear.

41Quantities of materials held should be a function of (1) frequency of supplier delivery, (2) company ability to reliably predict consumption levels during supplier lead time, and (3) vendor reliability in meeting promised shipment dates and in meeting specified quality (Goldratt, 1990, 108).

42Many TOC practitioners simply use Throughput/Inventory, but the above formula more correctly matches the traditional definition of inventory turns.

43Unavailability of credit was experienced by many businesses during the recession of late 2008, 2009, and the first part of 2010.

44Find at: http://www.nasba.org/nasbaweb/NASBAWeb.nsf/FNAL/CandidateBulletin?opendocument. Business Environment and Content requirements begin on p. 29. Accessed August 29, 2009. (Section VI, C, 5, p. 33, states that candidate responsibilities include "Management philosophies and techniques for performance improvement such as Just-in-time (JIT), Quality, Lean, Demand Flow, Theory of Constraints, and Six Sigma.") 45The Certified Management Accountant examination sponsored by the Institute of Management Accountants has also updated its Content Specification Outline to include TOC and TA, effective May 1, 2010.

46Numerous threads to this effect can be found in the archives of the AECM Web site (Jenson et al., 2009).

47The seven FASB Concepts Statements may be found at the following Web site: http://www.fasb.org/jsp/FASB/Page/SectionPage&cid=1176156317989, (accessed March 20, 2010.) 48See Chapter 14 in reference to dysfunctional behavior caused by local measures.

1Note: Recent events in the world economy have made companies hypersensitive to cash. Cash and cash flow are necessary conditions of doing business and should not be treated as objectives in and of themselves. In a good TOC system, however, decisions tend to be filtered by their total cash implications since the metric system assigns product cost based on the direct cost method instead of a standard product cost basis that would include both fixed and variable overhead.

2Chapter 15 provides a simple numerical example illustrating these points.

3Johnson and Kaplan (1987) provide a history of managerial accounting and describe many of the problems created by its use.

4The APICS Dictionary (Blackstone, 2008, 14) defines a break-even chart as "(a) graphical tool showing the total variable cost and fixed cost curve along with the total revenue curve. The point of intersection is defined as the break-even point (i.e., the point at which total revenues exactly equal total costs)" ( APICS 2008, used by permission, all rights reserved.) This definition uses the traditional view of fixed and variable costs. This difference between TOC and traditional accounting creates vast differences in decision making in most situations. TOC falls in line with fundamental economics, therefore giving the correct answer.

5The TOCICO Dictionary (Sullivan et al., 2007, 40) defines protective capacity-"Resource capacity needed to protect the throughput of the system by ensuring that some capacity above the capacity required to exploit the constraint is available to catch up when disruptions inevitably occur. Non-constraint resources need protective capacity to rebuild the bank in front of the constraint or capacity constrained resource (CCR) and/or on the shipping dock before throughput is lost." ( TOCICO 2007, used by permission, all rights reserved.) 6For an in-depth explanation and case study on pricing indifference modeling, we refer you to Chapter 9 of The Measurement Nightmare, How the Theory of Constraints Can Resolve Conflicting Strategies, Policies, and Measures, by Debra Smith, St. Lucie Press, 2000.

7The TOCICO Dictionary (Sullivan et al., 2007, 40) defines time buffer-"Protection against uncertainty that takes the form of time." ( TOCICO 2007, used by permission, all rights reserved.) 8The TOCICO Dictionary (Sullivan et al., 2007, 43) defines stock buffer-"A quantity of physical inventory held in the system to protect the system's throughput." ( TOCICO 2007, used by permission, all rights reserved.) 9Capacity buffer is the sprint or protective capacity placed at non-constraint resources to protect against Murphy.

10The TOCICO Dictionary (Sullivan et al., 2007, 4142) defines roadrunner work ethic as "(t)he work rules in the drum-buffer-rope or critical chain project management (CCPM) systems. The rules are: if there is work available start it immediately; if there is more than one work-order/task in queue choose the one with the highest system-priority; work at full speed without stopping until the work is completed; produce zero defects and pass the work on immediately; if there is no work available stay idle." ( TOCICO 2007, used by permission, all rights reserved.) 11See Chapter 13.

12Whether the environment is CCPM, DBR, Replenishment, or ASR, the specifics and the supporting tools of reporting and measurement, direct the necessary change but the five questions remain the same.

13The TOCICO Dictionary (Sullivan et al., 2007, 48) defines time buffer-"Protection against uncertainty that takes the form of time. See: assembly buffer, buffer, drum-buffer-rope, drum buffer, capacity buffer, feeding buffer, project buffer, shipping buffer." ( TOCICO 2007, used by permission, all rights reserved.) 14See Chapter 24 for an explanation of these processes.

1 E. M. Goldratt used by permission, all rights reserved.

2Thomas Aquinas (12251274), the most important Catholic medieval philosopher and theologian, was most likely the one who came up with the classification of "sins of omission" and "sins of commission," but there are references to "the sin of failing to do something good when you know you should" and "the sin of doing the wrong thing" in the Bible (the Good Samaritan parable and Ten Commandments are classic examples of such references).

3The improvement challenges identified by Barnard are similar in nature to those identified by Dr. Eli Goldratt in The Choice (2009, 157158) as obstacles that must be overcome to achieve a full life (through the choice to think like a scientist). These include "perception that reality is complex," "accepting conflict as given," "blaming others," and "thinking that you know."

4See Chapter 25 of this Handbook.

5See Chapter 16 of this Handbook for a case study involving such a five-day workshop.

6 E. M. Goldratt used by permission, all rights reserved.

7A time buffer is a release control mechanism that protects the due date of an order against expected disruptions (Murphy) by releasing it significantly earlier than the actual processing time of the order while not so early that it will contribute to long queues, high WIP and longer lead times. The general rule in TOC is that time buffers are set at 50% of the pre-TOC implementation lead time and are divided into three equal zones (green, yellow and red) with orders that enter red status, triggering expediting actions.

8Goldratt's latest insights on the required focusing mechanism for continuously improving Operations, Distribution, Projects, and Sales can be found in Goldratt's generic S&T that have been released into the public domain. These can be found in the S&T Library embedded in HARMONY (S&T Expert System) downloadable from www.goldrattresearchlabs.com.

9TOC draws a distinction between issues that are truly important and issues that are of a peripheral nature. Goldratt has used a wonderful word from the Israeli slang to describe trivial issues: choopchick. Apparently, "choopchick" comes from the behavior of teenage boys that spend so much time on their "choop"-their hair-with a real belief that this will help them attract "chicks"-teenage girls-therefore, it refers to an action that takes significant efforts, but accomplishes very little else. The effect of choopchicks within the management process can be devastating. Wasting time and resources on relatively unimportant issues diverts efforts from genuinely significant concerns.

10See, for example, T. Pyzdek and P. A. Keller, 2010. The Six Sigma Handbook. 3rd ed., New York, McGraw-Hill, 127133.

11DMAIC is the acronym used for the Six Sigma process that includes five steps-Define, Measure, Analyze, Improve, and Control.

12All the latest S&Ts are available at www.goldrattresearchlabs.com with a free download of Harmony S&T viewer.

1Examples of TOC success stories that were not sustained, or eventually failed due to one or more of the listed mistakes include Bethlehem Steel and General Motors.

2Dr. Eli Goldratt (Goldratt, 1999b) calls the exponential growth in performance the "red curve" and the improved stability curve with diminishing returns towards a maximum level, the "green curve."

3(Cost World: Managing using rules that assume Global Optima = Sum of Local Optima). Throughput World: Managing using rules that acknowledge Global Optima Sum of Local Optima. Global optima is achieved through better protecting, exploiting or elevating system constraints to increase System goal units (Throughput) with the minimum Operating Expenses and Investment.

4Goldratt (2009) has recently shared his own realization that TOC can be summarized in one word-FOCUS, as outlined in Chapter 1. Goldratt also explains that for him the definition of FOCUS is simply preventing the two mistakes identified by Ackoff (2006). Real FOCUS means doing what should be done and not doing what should not be done.

5A large bank of references of TOC success stories can be found at www.toc-goldratt.com.

6The exception to the rule are the holistic implementations of TOC within the U.S. Navy and Air Force maintenance centers (www.realization.com), some hospitals within the U.K.'s NHS (www.healthcaretoc.com), Japan's Ministry of Land, Infrastructure and Transportation (MLIT) (www.afinitus.com/japanpw.html), and the TOC for Schools (www.tocforschools.com).

7Barnard's four methods (Barnard, 2003) for breaking any conflict, focuses stakeholders mainly on identifying and challenging the conflict assumptions (rather than the traditional TOC approach that gets stakeholders to challenge all the logical assumptions related to a conflict). The conflict assumptions (Why D jeopardize C?, Why D' jeopardize B?, Why D is in conflict with D' and Why there is not another to satisfy B and C?) are the real reason why the conflict exists, and therefore, if challenged directly provide an efficient and effective way to break any conflict.

8Pilot Workshops #3 and #4 were facilitated by Professor Antoine van Gelder and Barry Urban who also have provided the ongoing support to the four cities after the kickoff workshops, with support of the waste experts Andrea Schultheis and Dieter Steinbach.

9Samples of the simulation games frequently used in these sessions can be downloaded from www.goldrattresearchlabs.com.

10Ray Immelman's book, Great Boss, Dead Boss, explains the importance of tribal behavior in organizations.

11Large organizations such as Boeing and ABB have shown that it is possible to do a "bottom-up" implementation of TOC. Generally, these do take longer and need a committed and growing group of internal TOC experts and practitioners, supported by external TOC experts, and an effective communication mechanism to share internal results and lessons learned with the rest of the organization.

1PIMS is the acronym for Profit Impact of Market Strategies, a commercial database, originally developed for General Electric. The variables gathered included such items as market position, product quality, and capital investment. Studies were then conducted by many different researchers to determine the variables' relationships to such outcomes as profitability and market share. Eventually, the PIMS database included data on several thousand businesses.

2For more information on the exercise of power in the strategy-making process, see for example, Bower and Doz (1979), Brandenburger and Nalebuff (1995), Guth and Macmillan (1986), Hamel, Doz, and Prahalad (1989), MacMillan (1978), Pettigrew (1977), and Sarrazin (19771978).

3The TOCICO Dictionary (Sullivan et al., 2007, 4344) defines Strategy and Tactic tree (S&T) as-A logic diagram that includes all the entities and their relationships that are necessary and sufficient to achieve an organization's goal. The purpose of the S&T tree is to surface and eliminate conflicts that are manifested through the misalignment of activities with organizational goals and objectives.

4Major measures for the Sales function relate to the amount of sales made; many times sales are made based on promises of short lead time. Production, on the other hand, is measured by efficiencies of resources, which translates into proper scheduling and large batches. Still another view is Finance which strives for low inventory levels which translates into few items stocked and little inventory of each item. The TOC logistics solution provides a win-win-win solution to these conflicts. DBR, for example, provides high utilization of the key resource, the constraint (satisfying production), rapid response to sales needs (short lead times and dependable service) and little investment in inventory (due to the responsiveness of DBR and the make-to-availability stocking option. The customer is the ultimate winner with this strategy.

5See the following Web site for examples of some generic S&T trees: https://www.toc-goldratt.com/store/product.php?productid=111121.

1Scientific research shows that approximately 90 percent of business process re-engineering efforts fail to achieve tangible results (A.T. Kearney M&A study referenced in Bruner, 2004.). Fifty percent of all mergers and acquisitions fail outright, while most fail to realize expected synergies (McDonald, Coulthard, and de Lange, 2005). Fewer than 50 percent of companies undergoing restructuring or downsizing realize lower costs or higher productivity (Schneier, Shaw, and Beatty, 1992).

2See Section VI for a discussion of the TOC Thinking Processes.

3The TOCICO Dictionary (Sullivan et al., 2007, 43) defines strategy and tactic tree (S&T)-A logic diagram that includes all the entities and their relationships that are necessary and sufficient to achieve an organization's goal. The purpose of the S&T tree is to surface and eliminate conflicts that are manifested through the misalignment of activities with organizational goals and objectives.

Usage: Organizational strategy specifies the direction of the activities that purport to address longer range problems and issues. Tactics are the specific activities needed to achieve the strategic objective involved in implementing organizational strategies. Since strategy and tactics exist and must be synchronized within various organizational levels, this logic tree translates high level strategy down to the level of day-to-day operations. ( TOCICO 2007, used by permission, all rights reserved.) 4Some tables are mentioned in the text that are not shown in chapter tables. Use the Harmony to view the full S&T tree structure and tables. For example, this S&T tree is four levels (numbered in upper left corner) and 29 tables. Hence only a few tables are shown here for illustration. The Harmony viewer can be downloaded at: http://www.goldrattresearchlabs.com/?q=node/2 5simplified drum-buffer-rope (S-DBR)-The process of managing operations based upon a shipping buffer, a market drum, and secondary attention to any capacity constrained resources (Sullivan et al. 2008, 43).

6See Goal Systems International Website. Books and papers: Simplified Drum-Buffer-Rope. 2000. http://www.goalsys.com/books/documents/S-DBRPaper.pdf for an excellent description of the concept by Schragenheim and Dettmer.

7For the full story, see Furniture Industry News Web site, Furniture Today archives, Issue 32, April 12, 2004. http://www.furnituretoday.com/article/25111-California_s_Orman_Grubb_closing_doors.php 8In such a chapter of a book, it is impossible to anticipate, let alone answer all possible questions related to an S&T. However, if you have questions, you are welcome to email them to gerryikendall@cs.com. I will do my best to provide meaningful answers to clear, concise questions.

9Typically, the only projects that are executed without the intention of bringing independent value are mandatory projects (e.g., those dictated by government regulations). Often, organizations split a single initiative into multiple projects, where some are prerequisites and do not bring value until the follow-on projects are completed. In the author's opinion, this is a grave mistake. From observation, often the prerequisite projects are completed with huge, sometimes indefinite, time lags before executing the follow-on projects that deliver to the bottom line.

10The TOC pull replenishment system also provides automatic adjustments, up or down, to inventory buffers at each link in the chain. When the actual inventory level at a location appears too frequently in the red zone, the target inventory level is automatically increased by one third. Similarly, when trends are down, the inventory will be in the green zone for most or all of the replenishment period. Then inventory targets are adjusted down by one third.

11The implication of having less inventory at the retail level is counterintuitive for manufacturers and distributors. In the TOC distribution paradigm, retail sales grow for all the reasons explained in this section. Therefore, manufacturers and distributors also gain greatly from increased sales and customer satisfaction and loyalty.

12Please read Chapter 36, this volume.

1The military context is the basis for this taxonomy, as reflected in Table 19-2. In military applications, operations are large-scale coordinated events (often multi-service). Tactics are normally employed by smaller, discrete units.

2Many people and organizations make no concerted effort whatsoever to observe what's going on around them and put such observations into any kind of context relevant to themselves. As Winston Churchill once observed, "Man will occasionally stumble over the truth, but most of the time he will pick himself up and continue on" (Winston Churchill, http://quotationsbook.com/quote/19633/).

3It was nearly two decades before Boyd himself actually identified, analyzed, and articulated the OODA process he was unquestionably practicing it in the 1950s. But he was doing it all the same.

4Different people refer to the methodology created by Goldratt variously as thinking process or thinking processes. For the past eight years, I have inserted the word "logical" when I refer to it and used the singular form in order to more simply convey what the method involves to audiences having little or no prior exposure to TOC. The simplified, more streamlined version of the thinking process that I teach now-what amounts to a third generation-differs enough from Goldratt's initial conception that I believe it warrants a modified name. The essential concept of logic trees, though, is still the brainchild of Goldratt.

5Current Reality Tree, Evaporating Cloud, Future Reality Tree, Prerequisite Tree, and Transition Tree.

6The use of the IO Map is not limited to strategy development alone. As it happens, its use as the first step in the LTP for any purpose is highly recommended. See Dettmer (2007) for a more detailed explanation.

7Note that depending on environmental conditions, "maximum profitability" might actually be numerically negative. Nevertheless, it would be the smallest negative number possible to achieve.

8A cybernetic system is one that is affected by environmental shifts but has the means through feedback control to continue to meet system objectives. Additionally, a cybernetic system's objectives are not rigidly fixed but are adaptable to changing conditions and responsive to new understanding. Cybernetic systems gain from experience and thus exhibit learning (Athey, 1982).

9It's highly desirable to capture baseline figures, statistics, and other data in the first iteration of the observe step to facilitate effective detection of change in the second iteration of observation. Too often, this is neglected in actual practice.

10Other chapters in this Handbook provide guidance on constructing CRTs. The Logical Thinking Process (Dettmer, 2007) provides step-by-step explanation and instructions not found elsewhere specifically for integrating the IO Map with the CRT.

1There are two distinct motives for initiating a change: (1) there is a problem in the current situation or (2) there is an opportunity we would like to seize or a vision we would like to pursue. In the latter, we ask Wary Will to climb up the cliff not because there is an alligator behind him but because there is a treasure up there. This situation requires a very different buy-in process that is outside the scope of this chapter. If we try to use the Layers of Resistance here, we might very well get stuck at Layer 0-the other party will insist there is nothing wrong in the current situation, which is actually correct.

2According to their suggestions, the more familiar people become with the change, the more control they have over decisions and actions, and the more they invest their time, ideas, and resources, the stronger their sense of ownership becomes.

1In our company, we refer to sales opportunities as "projects."

2I highly recommend each and every one of you to read this article. This paper has since been published: 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.

3Used with permission by E. M. Goldratt (2009). E. M. Goldratt, all rights reserved.

4There are many fun and insightful exercises that demonstrate the damage of bad multitasking. In our company, we particularly like to use the "paper-tearing" game.

5The way to read a Current Reality Tree is to start from the bottom of the tree upwards. You read "if [statement at the bottom of the arrow] then [statement at the top of the arrow]." If several arrows are tied together with an ellipse, then all the statements tied together at the bottom of the arrows should be read using "if [first statement] and if [second statement], then [statement at the top of the arrow]."

6To better understand this concept relating to production, please read "Standing On The Shoulders Of Giants," talk to anyone in planning in case S-DBR is implemented in your company, or read Step 4:11 in a Strategy & Tactics Tree for Make-to-Order companies.

7As of today, the only place Goldratt refers to this curve is in his latest Project Management Webcast series. As one would read in "Standing on the Shoulders of Giants," the representative curve in most production environments is an inverse curve, referred to as the "U curve." The following explanation is a paraphrase of Goldratt's explanation of the U curve in "Standing on the Shoulders of Giants."

8[250 (1 0.11)]/2 is approximately 110 opportunities. Following the formula would have guided us to cut 45 percent of the projects. In reality, we cut 50 percent of the projects, which is practically the same.

9We intend to use the green, yellow, red status indicators, not as part of the POOGI, but as a daily management tool to identify delays early on and focus management attention before it accumulates to a significant delay.

10While we claim low variability is an indication to a flaw in the process affecting the performance of all salespeople, we are not claiming that high variability necessarily indicates that the source of disruption relates to the individual performance of a salesperson. High variability in performance could be a result of different processes applied by salespeople, or that some of the salespeople don't follow a flawed process. When one experiences high variability in performance, both possible types of disruptions to flow should be explored.

1Send an email to refund@MafiaOffers.com to request your refund. You will be refunded the e-book price of this chapter.

2It is not a strong offer because it can be copied easily. However, it is unusual for such an offer to appear in a book and I sincerely believe that if you spend the time with this material, you can have a positive impact on your business.

3Originally a white paper titled Less is More, revised and now published in Chapter 21 of this Handbook. Copyright 2010 by Dr. Lisa Lang.

4See Chapter 21 for an updated revision to this white paper.

5Firefighting mode is when you are consumed with emergencies and last minute priorities instead of planned, rational progression and improvement.

6Jayne Smith had similar findings and published them in her book, Creating Competitive Advantage.

7SCAs, USPs, and CVPs are often no more than tag lines.

8You may realize some benefit to applying sales process management or funnel management even when you have a market constraint, but you will experience much bigger benefits with the combination of a Mafia Offer and funnel management. Funnel management (or sales process management) is typically handled by TOC practitioners by applying Drum-Buffer-Rope (DBR) to the sales process. See Chapter 21 or http://www.SalesVelocitySystem.com where these concepts are applied.

9We can typically ask a few questions, depending on the type of operation, and get some idea of the improvements that are possible. However, if you do not have this experience, Fig. 22-1 can serve as a guide.

10I am not saying we would start quoting a 2-week lead time, but that our internal cycle time would go from about 6 weeks to about 2 weeks and we will capitalize on our shorter internal lead time.

11Please refer to the logistics chapters (7 through 12) of this Handbook for further guidance on establishing operational improvements.

12For our analyses we use the rigorous cause-and-effect logic of the TOC thinking processes.

13Our version of S-DBR for custom job shops is called Velocity Scheduling System and you can find more information at www.VelocitySchedulingSystem.com 14This section draws heavily from the concepts in Neuromarketing: Understanding the "Buy Buttons" in Your Customer's Brain by Patrick Renvoise' and Christophe Morin, but what is new is the combining of neuromarketing concepts with TOC concepts.

15The solution for sales method for presenting offers was developed by Rami Goldratt and first presented at the 2003 TOC Upgrade Workshop in Cambridge, England.

16See excerpt from Stephan Shapiro's August 7, 2007 newsletter.

17Excerpt from Stephen Shapiro's August 7, 2007 newsletter.