Top Management Story

Writen by Samuel Okoro

Business Process Revisited:
We have previously defined a business process as a sequential series of interrelated tasks triggered by an event, and undertaken to provide valued outcomes to customers.

Dependent Activities - Critical Chain:
When we combine the ideas of sequence and interrelatedness, we reach the conclusion that the process steps are dependent on one another. Subsequent steps cannot be carried out until prior steps have been done.

Statistical (i.e. unpredictable) Fluctuations:
Almost every business process contains statistical fluctuations. While average figures can be given for the time it takes a call centre representative to resolve a customer issue, or the hourly production of a manufacturing line, or the time it takes a restaurant to serve a dinner, in each of these cases, the actual value can vary widely around the stated average. To appreciate the nature of fluctuations, consider a die thrown a large number of times. While individual throws will vary from 1 to 6, the average outcome will be 3.5. Stating the average throw as 3.5 masks the wide variation in actual outcomes.

Constraints:
The dependent nature of process steps creates enormous leverage when considering improvements. Like a chain that is only as strong as its weakest link, the process throughput is wholly determined by the capacity constrained resource. The speed of a marching file of soldiers depends on the speed on the slowest man. There are two main types of constraints. These include physical (space, time, capability, market) and policy constraints.

The combination of dependent processes and statistical fluctuations leads to escalating work in process inventory (where an internal process is the constraint) or finished goods inventory (where the market demand is the constraint), and eventually lower throughput.

1. Locating Performance Constraints:
The foregoing discussion makes it obvious that the only way to improve the performance of a system is to improve the performance of the constrained resource. The first step in improving the process is to identify the constraint. For each value chain, there can only be a single constraint at any time (weakest link in the chain).

To identify a constraint, simply ask, "What is it that limits the system throughput? What limits the amount of money we make? What stops us from satisfying the entire demand? Where do we find inventory piling up?" Assume you were to attempt to gradually increase throughput from zero by increasing the inputs into the process. The resource in front of which you begin to have a significant and sustained build up of inventory is your constraint.

2. Exploiting Performance Constraints:
Having located the constraint, the next step is to exploit the constraint. This means optimising the performance of the system based on a proper understanding of what is going on. According to Goldratt, inventor of the Theory of Constraints, most constraints that at first glance seem to be physical, on closer examination turn out to be the result of invalid assumptions and harmful policies. For example a change in product mix (arising from a change in policy) could significantly increase throughput (revenue less costs) obtained from a given production facility, even with the same constraints intact.

The constrained resource must operate at or close to full capacity at all times. Non-constraints must then operate at a level of capacity utilisation necessary to only supply the requirements of the constrained resource. Anything more creates unnecessary work in process inventory and reduces throughput.

3. Subordinating Everything Else to the Above Decision: All policies and decisions must align with a proper exploitation of the constraints. For example having decided on the product mix which maximises throughput, the reward system for the sales force must not encourage sales persons to push a different mix.

4. Elevating the Constraint:
At the last step, we have obtained as much improvement as we can without any added investments. The next step is to turn the constraint into a non-constraint by increasing its capacity. For physical constraint, expense or investments may be required to elevate the constraint. To elevate a policy constraint will require a different sort of investment - that of political capital.

5. Return to Step 1 while Avoiding Inertia:
Once a constraint is broken, by definition a new one is created. Thus we must return to the first step of identifying the constraint.

It is important to avoid inertia at this point. According to Goldratt, a number of rules and policies are in place in the system that is consistent with the existing set of constraints. Once any of these are broken, then the underlying assumptions for these policies should be examined to determine their continuing relevance. Otherwise, these policies through mental inertia, become constraints in themselves. To continue our previous example, the breaking of a constraint may dictate a new product mix to exploit the new constraint, and a new reward system to align sales force behaviour with the new requirements.

Samuel Okoro is the CEO of Leapfrog Alliance Ltd, a management training and consulting firm that helps organisations to reduce costs and improve quality through better business processes. His personal passion is to help move Third World business to world-class levels. For further details please visit http://leapfrogalliance.com/resources.html.