The above paragraph is the marketing blurb for Eli Goldratt’s 1984 novel The Goal. The novel reads like any other fast-paced thriller, but this isn’t just a novel – The Goal contains a serious message for all managers in industry.
Within its pages Goldratt outlines the ideas that underpin the business improvement methodology known as the Theory of Constraints – or ‘TOC’ as it’s commonly referred to – which he invented.
Goldratt, an Israeli physicist who became a business management guru, developed TOC having witnessed the manufacturing capabilities of countries in the West deteriorate, largely due to the fact that on the whole these companies were operating with severe inefficiencies.
So The Goal is “about people trying to understand what makes their world tick so that they can make it better,” explains Goldratt in the introduction to the novel. “As they think logically and consistently about their problems they are able to determine ‘cause and effect’ relationships between their actions and the results... the Western world does not have to become a second- or third-rate manufacturing power. If we just understand and apply the correct principles we can compete with anyone”.
It all sounds great in theory, but how does TOC work in practice and what are the vital facts that printing companies need to know about it?
What is it?
TOC works on the principle that every business and every business process has one main ‘constraint’ or bottleneck. This constraint essentially relates to the slowest part of the process.
For instance, the production of a particular print job may require passing that job through three different machines, but you cannot produce the end-product faster than the slowest machine can process it. This means that if you run the faster machines at their full capacity this will create a backlog of work in progress, which in turn ties up the company’s cash.
Another example would be if a customer places an order for a print job for delivery in a fortnight’s time and the printer starts to get the job ready and print it as soon as it comes through the door. This means that the completed job then takes up valuable space on the factory floor until the time arrives for it to be shipped. It also means that vital financial (in terms of materials) resources and manpower hours have been needlessly expended.
To address these inefficiencies TOC provides a set of “holistic processes and rules, all based on a systems approach, that exploits the inherent simplicity within complex systems through focusing on the few ‘leverage points’ as a way to synchronise the parts to achieve ongoing improvement in the performance of the system as a whole,” according to Goldratt.
How does TOC differ from lean?
“In a nutshell TOC works to increase throughput and lean aims to reduce wasted time, material and other resources, including human potential,” explains Matthew Peacock, lean business process improvement coach at Active PPP.
“Because lean reduces wasted time by increasing productivity it often shares the same aims and uses the same problem solving techniques as TOC.”
How does it work?
In the simplest of terms TOC helps companies identify what they need to change, what they need to adopt instead and how to cement that change.
So TOC identifies the weakest link in a production chain – the constraint – and then turns that weak link into a “leverage point for increased throughput by applying a rigorous ‘cause and effect’ approach” – Goldratt argues that everything within a system is connected by cause and effect relationships
He also talks about TOC as being the initiator of a paradigm shift. Businesses are committed to paradigms – whether this be a set of patterns or assumptions – and it’s based on these paradigms that business decisions are made.
However, paradigms are dangerous because although they allow business owners to filter through information or data that matches their expectations, they typically block information that doesn’t – to use the terminology of TOC paradigms can therefore be ‘limiting’ and ‘conflicting’. As a result, businesses need to undergo a ‘paradigm shift’ and wake up to the fact that one or more of their patterns or assumptions are no longer correct, which will ultimately free it from that constraint.
“Sometimes the constraint is not the most obvious, expensive ‘glamorous’ operation – eg: a printing press,” says Peacock. “It could be a simpler operation, for instance, guillotining. In this example, working hard to increase press productivity without fixing the guillotine is a waste of time. The problem is with several intersecting product streams [as happens in a typical printing business] the bottleneck can move about and is hard to pin down. However, if the process is designed so that the most expensive operation is the bottleneck it can provide a useful single point at which scheduling and capacity can be planned, which is of course what most printers do anyway by scheduling the presses and probably carrying ‘spare’ finishing capacity to support it. If finishing gets over-stretched then finishing work can be subcontracted.”
Goldratt outlined his initial vision for TOC in the mid-1980s, but since then the theory has been developed and evolved, with a number of new ideas and solutions introduced, such as the imaginatively titled ‘Mafia offer’ and ‘drum-buffer-rope’.
The latter tool is something that Darren Shepherd, BPIF business development manager across the northern region, is a major fan of. Shepherd came across TOC when he was managing director of a printing company called Jade Press and attended a introduction day organised by the BPIF’s Vision in Print team. He instantly bought into the idea and applied the principles of drum-buffer-rope to the production floor of the business.
“The drum is production, buffer is the safety you need to build in so that the drum doesn’t stop, and the rope is either how you tie something back, so it isn’t released, or how you pull it through,” explains Shepherd. “What we realised was that on the production floor we had dozens of jobs in progress and what tends to happen in most printing companies is that the job is printed and then it sits on the floor for three, four or five days taking up space. People have to walk around the job and you’ve committed the raw materials to it even though you can’t actually get it through the door because the customer doesn’t want it yet.”
By applying the principles of drum-buffer-rope you only commit to the work that you need to commit to, which enables you to hold capacity back, says Shepherd.
“So the purchase of materials and the release of the plates were tied off the back of when we needed to print the job and the printing of the job was determined by the delivery date. In print, logic suggests that the second the job comes through the door you start printing it,” he explains.
“However, we reversed that process. When a job is only a shift on press and a shift in finishing why print it on day one when you don’t need it until day five? We committed to actually printing the work on day three, but we would do pre-flighting, run the proofs out and get the account handlers to check the job on days one and two and then we would print it on day three confident that it would go right through and be ready to deliver,” adds Shepherd.
What sort of firms will benefit from TOC?
TOC would be relevant for many printing companies, but according to process improvement experts it’s much harder to implement than business methodologies like lean or kaizen.
As Shepherd explains: “People can get their head around lean pretty quickly, but this is a different approach. There’s more theory involved and it can create some ripples because of the ‘anti-logic’ in a lot of things you do.”
That said, one of the key advantageous things about this methodology is that it can be applied to numerous parts of a business – from distribution and supply chain, through sales and marketing.
“An interesting point about TOC is that often the constraint on throughput is actually lack of sales to support the fixed costs, so increasing sales effectiveness becomes the main TOC project, but common sense and looking at management accounts might reach the same conclusion without the TOC hype,” says Peacock. “Lean advocates might also argue that if waste is high in non-bottleneck operations, even if throughput is increased then the process can remain unprofitable. Increasing profits come from reducing waste – especially on direct costs like material – to increase margin and productivity and/or increasing sales without increasing capital resources like new presses.”
What’s the best way of learning about and implementing TOC?
Reading The Goal is a good starting point. Goldratt penned a number of follow-up books building on the principles underpinning TOC, but still using the novel format (see ‘reading list’).
Crucially printers looking to embrace TOC shouldn’t view it as a panacea in its own right, warns Peacock. “In my experience the TOC principles are very useful when used in combination with business improvement ideas from lean, six sigma and other ‘packaged methodologies’,” he says. “Applied as a methodology in isolation TOC has not often been applied successfully without using lean and other business process methodologies as well.”
Indeed, EFI senior director of product management Udi Arieli has used TOC as the basis for another methodology involving three letters, his Theory of Global Optimisation (TGO). “Bottlenecks and constraints are different. Bottlenecks can be good, and can be managed. Constraints are not so good and need to be fixed,” he states. “Throughput is more important than job costing or cost accounting.”
What are the benefits?
Goldratt – who died in 2011 – claimed that if businesses applied the operational approach that he developed it would be possible to increase net margins 10-fold. It’s also been claimed that TOC can help companies to achieve a reduction in lead times of 69%, an improvement in due date performance of 60%, a reduction in inventory levels of 50% and an increase in revenue/throughput of 68%. Shepherd says that when it was implemented by Jade Press the company increased through put and “stripped out a lot of waste”.
As for the protagonist of The Goal, Alex Rogo, by implementing the principles of TOC he successfully turns the business around by abandoning many management principles he previously subscribed to – he also saves his marriage in the process.
READING LIST
The Goal by Eli Goldratt
The book introduces fictional factory manager Alex Rogo who is tasked with saving his business and, in the process, his marriage. He is helped along the way by his old friend Jonah – essentially a representation of Goldratt – and the learning process he undergoes sees him embrace the principles of TOC.
It’s Not Luck by Eli Goldratt
Goldratt’s follow up to The Goal charts Alex Rogo’s progression through the management ranks to the position of executive vice-president in charge of three recently acquired companies. However, Rogo is faced with a tough decision after a change of policy at board level, which means that the businesses he oversees need to be sold off. He needs to turn around the fortunes of these businesses so that the parent company can generate maximum return from the sale or they will be closed down anyhow. It looks like a lose-lose situation – or is it?
The Race by Eli Goldratt and Robert Fox
Introduces the drum-buffer-rope system for “continual logistical improvements”. It illustrates how to focus on those process improvements that will have the greatest impact on a company’s competitive edge. The Race is considered to be a more illustrative version of The Goal.
The Haystack Syndrome by Eli Goldratt
This book outlines the challenge that businesses face due to the raft of data that they hold, yet at the same time they rarely have enough information to help them make sense of these numbers. The book sets out a practical solution to the problem of data overload.
Critical Chain by Eli Goldratt
Like some of Goldratt’s earlier books, Critical Chain is written in novel form and tells the story of a professor trying to attain his tenure at a university’s business school. It essentially applies the principles of TOC to project management.
CASE STUDY: CFH Docmail
Examples of UK printers currently using TOC are few and far between, but one evangelist for the business improvement methodology is Dave Broadway, managing director at CFH Docmail.
According to Broadway TOC is a “core driver for the business”, which derives a large part of its revenue from postal services and IT, to the extent that pricing of CFH’s basic print work is based on the “value added – or VA – per hour of the constraint in the process”.
Broadway adds that it’s difficult to describe specific benefits the company enjoys from using TOC as it is core to the entire business.
“TOC leads to a lot of changes in the way that the business works at every level,” he explains. “I suspect that our accounts and management information systems are very different to those of other businesses. Our assessment of pricing for new contracts
will be very different. Even our project management and IT development are driven by TOC thinking.”
