The audit process is based on investigating “mysteries”; or as Eli Schragenheim had called them in his landmark presentation in Cambridge – surprises. A mystery is an effect in reality that contradicts a predicted effect of the S&T tree. In a recent audit of an MTO company (producing metal cables of the kind that is used for holding elevators), two mysteries were evident. But first a little background:

The company had already implemented, to the letter, the left part of the RRR tree and had quickly improved its DDP from around 50% (which is typical to its industry) to the satisfactory level of 98%. They proceeded by properly exploiting the resulting competitive edge of this extreme reliability, to the extent that the market is no longer the constraint. Actually they are winning so many orders that the “load control” pushed their promised due-dates to be later than the market lead time. Since it takes a long time to add capacity (about a year) they are now contemplating a mechanism that would enable them to safeguard their preferred clients (“When given delivery lead times are (much) longer than the industry standard lead time, not only may orders be lost, but clients may be lost.” – RRR S&T step 4.13.2 – Capacity Elevation).

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The importance of answering "What to change?" Dr. Eliyahu M. Goldratt Share this video Dr. Goldratt explains the very first key question of improvement and why the Theory of Constraints considers its answer to be  so important. 7 min, English, Spanish

In MTA environments there is a need to hold protective capacity. The problem is that in order to use the protective capacity when needed, this capacity is on average idle. In the previous nugget (“light blue 1″, no. 11) we discussed a way to directly exploit the protective capacity; to use this idle capacity to satisfy more sales. The first light blue method is based on the use of protective capacity to produce to stock, which is then offered in segmented markets – dumping markets. The nugget ended with a warning not to use this method if the company cannot find suitable dumping markets. In cases where the company can’t find enough such markets, and consequently a part of the protective capacity is left unutilized, there is another possible method that can enable exploitation of the remaining free protective capacity. This method is based on processing clients’ orders by the protective capacity and therefore it is applicable only in mixed MTA+MTO environments.

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Light Blue - a Buffer Management concept Dr. Eliyahu M. Goldratt Share this video Dr. Goldratt talks about a relatively new Buffer Management concept called "Light blue". The details of this concept can be found in his Golden Nuggets articles published in his blog (http://blog.eligoldratt.com). 3 min, English

One of the crucial elements required in any MTA environment is maintaining high enough a level of protective capacity1. Practically, it means that the work centers are not allowed to operate 100% of the time. In fact, the most loaded resource will be, on average, about 20% idle2. However, as we all know, people feel very uncomfortable with the idea of idle capacity. This is especially true in environments that utilize highly expensive equipment, and even more prominent in environments where full activation of resources is theoretically possible, since they have saleable products at many different intermediate stages of the production process. Such environments do exist, and are evident in many V environments.

The reluctance to hold capacity idle may cause companies to dip into the protective capacity, especially when we bear in mind that most companies are not used to operating with a decisive competitive edge and therefore, at least in the early stages of implementation, are not fully aware that having a decisive competitive edge does not only help in getting more sales, but is the foundation for stable growth. How can we make sure that the proper amount of protective capacity will be maintained?

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Light Blue - a Buffer Management concept Dr. Eliyahu M. Goldratt Share this video Dr. Goldratt talks about a relatively new Buffer Management concept called "Light blue". The details of this concept can be found in his Golden Nuggets articles published in his blog (http://blog.eligoldratt.com). 3 min, English

The mechanisms to control both the MTA and the MTO in a mixed environment are the same mechanisms used in an environment of pure MTA or pure MTO. The only difference is that when using load control for providing promised due-dates and for determining the time to release the material for MTO, we regard only the MTO production segment instead of taking into consideration the total capacity and load. More explicitly, the way to allocate the capacity in such mixed environments is as follows: first assign capacity for MTA based on the current coverage; then add 20% protective capacity (Note: The needed protective capacity is not 20% of the total capacity, but only 20% of the capacity required by MTA). The capacity remains is allocated for MTO.

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Keeping correct inventory levels Dr. Eliyahu M. Goldratt Related Info Share this video Dr. Goldratt explains the logic behind the implementation of a robust mechanism in the distribution system that ensures low level of inventory levels while at the same time very high availability. 11 min, English

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A company that had started Viable Vision implementation about a year ago had made satisfactory progress. Nevertheless, there was a point that troubled them as well as us: the level of inventory in their regional warehouses did not significantly decrease. It was months after the establishment of a central warehouse, coupled with the activation of daily replenishment according to actual consumption throughout the supply chain. Thanks to having a good level of availability at the central warehouse (99%), the replenishment time to the regional warehouses was cut to a mere fraction of what it originally was. Setting the inventory targets in the regional warehouse in accordance with the shortened replenishment time should have reduced the original high inventory levels there to less than half, even when taking into consideration the additional inventory that was needed for raising the DDP of the regional warehouses from the original performance – below 50% – to the current delightful level of 99%. More than enough time had passed to enable the mountains of excess inventory to be flushed out. So, how come the inventories in the regional warehouses were lowered by just 10%?… Click here to continue reading.

Distribution and Supply Chain – Pull System and Replenishment Dr. Eliyahu M. Goldratt Related Info Share this video With the exception of companies whose stated business is retail, most companies tend to ignore distribution. This is a huge mistake. Since every company is a link in a supply chain, most already realize that as long as the end consumer has not bought, nobody has sold. The biggest clot in the supply chain – the majority of the inventories – are usually found in the distribution stage. If a company wants to prosper its managers must understand how to help the distribution link to drastically improve its performance. 35 min, English, Spanish, Русский, 繁體中文, 简体中文

When we are told that a production company has 20% red orders, what does that mean? Seemingly the answer is clear – it means that if we go to the floor, we will see that 20% of the orders are red. But then again, maybe it means something else – that out of all the completed orders, 20% were finished while being red?

Here we have a situation where one term is being used to describe two different things. This ambiguity wouldn’t be a real problem if the practical implications, stemming from the two different interpretations, where the same. But this is definitely not the case; one of the above meanings of “red” is very important in terms of assessing the state of the operation, while the other has no practical implications and using it leads only to confusion.

In order to clarify the above statement, we ought to better understand the meaning of each definition. The first definition of red percentage is a description of a snapshot – the situation on the floor at a certain moment: how many orders from each color do the production workers see? Figure 1.a schematically shows a distribution of orders’ color on the floor at a specific point of time, under the assumption of a constant stream of incoming orders. The X axis is not a time axis, but rather represents the “age” of an order at the point of time when the snapshot was taken… Click here to continue reading.

Managing Production Priorities Dr. Eliyahu M. Goldratt Related Info Share this video In this extract from the Goldratt Strategy and Tactics for MTS to MTA, Goldratt presents and explains the strategy, tactics and corresponding assumptions for managing production priorities the TOC way. 17 min, English, Spanish

There are times that a technical consideration at a certain work-center forces us to process a minimum batch which is bigger than the order (e.g. a mixer that requires a minimum of 20 liters). Then, of course, we have no choice but to work on more units than needed for the order. But that doesn’t mean we have to carry those extra units onwards through all the processing chain (after passing the work center responsible for the technical consideration), as is too often done… Click here to continue reading.

A look into the rules of Operations Dr. Eliyahu M. Goldratt Related Info Share this video In this excerpt of the Necessary & Sufficient Series, Dr. Eliyahu M. Goldratt presents the core conflict of management when looking into Operations, showing the rules, policies and behavior that emerge as a result of it. The Golden Nugget #7 is a clear example of how solving this devastating conflict enables management to increase flow while at the same time reduce waste. 12 min, English