Can We Significantly Increase Production Capacity Without Additional Investment?

"Reality is exceedingly simple and harmonious with itself" — this observation by Newton is the foundation of all modern sciences. Because everything is interconnected, once we see these connections clearly, everything becomes simple.

The Theory of Constraints (TOC) is the application of the scientific approach to business. According to TOC, the results of any system, however complex it may appear, depend on only a few elements — the system's constraints.

What does this mean?

Let us consider the following system. It could be an entire company — the input is the Marketing department, followed by sales, operations, warehousing and delivery to the customer. The example is simplified, but every company has a flow in which customer requirements are transformed into satisfied customers and money in the bank account. In this case, let us assume that it is a production line with five work centres.

The input of the system is a raw-materials warehouse. The output is a finished-goods warehouse. Only a single product is manufactured. The number above each work centre shows that centre's daily capacity. How many products will be produced in one day?

It would seem the answer is 10, but in reality it is rarely more than 5.

Let us apply the Five Focusing Steps of the Theory of Constraints.

Step 1 — Identify the system's constraint

The constraint determines the capacity of the whole system. In the example, work centre "C" has the lowest capacity — 10 units per day. We might expect that at the end of the day the finished-goods warehouse will hold 10 products. In reality it is rarely more than five. Why? Because the bottleneck usually receives no attention and no dedicated management, and capacity is lost. How? For example: processing machines run at a lower speed; during breaks this work centre stops; the work centre is staffed by skilled people who spend a considerable part of their time on peripheral activities; too many orders; unclear priorities, and much more.

Step 2 — Decide how to exploit the constraint

The constraint determines the capacity of the whole system. To obtain the maximum result, we must ensure that work centre "C" always produces at its maximum capacity. (The solution must never come at the expense of people!)

Example: In a factory that produces custom-made metal structures, the resource limiting capacity turns out to be the welding shop. Because the welds must meet special requirements, the shop is staffed by highly qualified welders. The company cannot find more of them to increase the shop's capacity. On-site observation reveals that at any given moment only a few of the welders are actually welding. The rest of the time they collect the parts from the preceding shops themselves and, once they have made the welds, carry the product on to the next shop. Assigning a few people to do this unskilled work more than doubles the shop's capacity. Correspondingly, the capacity of the entire production operation more than doubles.

Step 3 — Subordinate everything else to that decision

Once we ensure that work centre "C" always runs at maximum capacity, how much raw material should enter the system? So that "C" never runs out of work, we should release slightly more than the capacity of "C" — for example, 11. This provides a buffer, so that the bottleneck never sits idle.

This, however, means that the people and machines at the remaining work centres must NOT be working for a considerable part of the time. Yet a great deal of money has been invested there in expensive equipment, and wages are being paid. Should we pay people to stand idle? Paradoxically, yes. The drive to keep everyone working at 100% all the time, the pursuit of local efficiencies, reduces the results of the system as a whole.

What happens if we load work centre "A" to 100%?

A high level of work-in-process (WIP), a lower flow speed, unclear priorities, degraded quality, longer production times, reduced capacity.

The bottleneck becomes the drum — it sets the working rhythm of the whole system.

Applying the first three focusing steps reduces work-in-process, frees up funds, shortens production lead times, provides clear priorities, increases capacity and improves quality. It also reduces multitasking, significantly increases production capacity and significantly improves on-time delivery. Conflict, urgency and chaos are reduced. Staff satisfaction and motivation are better.

What would happen if we equalised the capacity of all the work centres?

Instead of standing idle, would it not be better to lay off some of the people and sell off part of the equipment? To balance the capacity of all the work centres? Such a line suffers from the variation of every work centre and can NEVER achieve an output of 10.

Step 4 — Elevate the constraint's capacity

The first three steps significantly increase production capacity. If it is still not enough to meet market demand, then at step 4 we invest in new resources. We buy new equipment and hire new people to increase the capacity of the bottleneck. For example: we buy a new machine and the capacity of the constraint — work centre "C" — rises to 15.

Step 5 — If the constraint has been broken, return to Step 1

WARNING! Do not allow INERTIA to become the system's constraint.

The main reason that halts change at both the personal and the organisational level is inertia — we are used to doing things the way we do them. The comfort zone does not allow change. In many organisations that have applied the first 3 or 4 steps and achieved a significant improvement in results, inertia prevents them from continuing the process and achieving even more.

The Five Focusing Steps — not only for production

The Five Focusing Steps lead to significant improvements in more complex, multi-product operations too — where the production path is not linear and differs from product to product, and the bottlenecks shift as the workload or the product mix changes.

Because every organisation is a set of interconnected and interdependent activities and has a flow with an input and an output, this approach is valid for all types of organisations, not only manufacturing ones.

The system's constraint can be internal policies and rules. For example, setting the selling price of products according to production costs plus some profit margin can be a substantial constraint. A focus on turnover as the primary goal can lead to decisions that significantly reduce margin and profit. A large number of open tasks limits results. Increased multitasking — or, more precisely, switching between tasks — significantly increases lead time, stress and errors.

When the constraint lies outside the company, a sales solution is needed. A solution based on a Decisive Competitive Edge + a clearly defined market, a suitable offer, a sales process, a trained team and an execution process.

About the Theory of Constraints

The Theory of Constraints (TOC) is a management methodology based on the understanding that the results of any organisation depend on only a few elements. Finding and appropriately managing the system's constraints leads to rapid results and harmony throughout the whole system. TOC was created by Dr. Eliyahu Goldratt. He is known to millions of people around the world as a scientist, mentor and business guru. TOC is applied with exceptional success in almost every field of human activity — from industry and healthcare to public administration and education.

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Originally published on LinkedIn, 26 June 2020