Lean Manufacturing and the Theory of Constraints (TOC)

Lean Manufacturing and the Theory of Constraints (TOC)

This brief article will illustrate the compatibility, as well as the crucial differences, between the “Theory of Constraints” (TOC) and “Lean Manufacturing.”

In a physically constrained company, one or more parameters limit the output of the entire facility.

Physical constraints come in several varieties, the most common being: Plant or equipment limitations, People limitations, or Supplier (purchased parts) limitations.
The crux of The Theory of Constraints, TOC, can be summarized this way: Make all other operations subservient to the constraint.  And, do whatever is needed to maximize the output of the constraint.

As an example, we worked with a steel mill where the cold rolling mill was the constraint and its output limited the output of the entire division.
Significant efforts were expended to increase the cold mill’s output.
In parallel, kanbans were installed between every operation.  Then all upstream and downstream operations learned to run their coils in the preferred sequence that optimized the throughput of the cold mill.  This allowed for minimum WIP and short lead times, while still optimizing the constraint.

Example of a kanban in front of a bottleneck steel operation, cold mill

The kanban in front of the cold mill, the constraint, was sized sufficiently large, and reflected the maximum inventory build-up that would be allowed.  Note: even a constraint should have an agreed-upon upper limit as to the size of the buffer allowed.

This case study reflects a key point:  You can, and should, implement lean manufacturing concepts and techniques even in a truly constrained environment.  The benefits in this mill were spectacular!
By definition, a physical constraint is “AT CAPACITY,” meaning we flat can’t wring any more production out of it.
For most companies, that means that the constraint is either running, or being maintained, 24 hours / day, 7 days / week.

I recall attending a Theory of Constraints seminar a few years ago.  Turns out that more than 85% of the companies in attendance had NO physical constraints!
In our experience, the vast majority of manufacturers do NOT have actual physical constraints.  They may, however, have “imposed” constraints.
Just because one piece of equipment needs to run two shifts, does NOT mean that it is a constraint.  By definition, that piece of equipment could work overtime, add a third shift, crew the weekends, etc. i.e. it isn’t running 24 x 7.

Similarly, putting limits on overtime (OT), imposing hiring freezes, limiting air freight, etc. are imposed constraints, not physical limitations.  All such imposed constraints can and should be reviewed, and most likely eliminated, immediately.

The critical question to ask is “Is this unit keeping us from producing all of the required orders?   And, if so, why?
If we are NOT at capacity, or otherwise physically constrained, TOC advises us to focus on sales.  While this is indeed good advice, it is not terribly helpful.   The vast majority of manufacturing companies are: 1) NOT physically constrained, and 2) already aggressively pursuing increasing sales.

But what can we do internally to improve both our operating performance, and also provide a competitive advantage (i.e. to help us sell more)?  Lean addresses the very issues that help us increase sales: Quicker response, improved on-time delivery, world class quality, and reduced cost via the elimination of waste.

The bottom line: the Theory of Constraints is applicable in special situations.  Lean manufacturing Principles are applicable everywhere.  Lean Manufacturing uses inventory reduction as a means to improve all of the critical competitive parameters: Cost, Quality, Responsiveness, and reliability.

The typical non-lean plant has a considerable amount of inventory between operations (illustrated below).  These inter-unit buffers may be planned, or they may be caused by disparities in output rate, operator capabilities, equipment reliability, lot sizing, local optimization rules, etc.

Inventory isolates operations

These buffers allow each operation to be “disrupted” without having any immediate effect on total plant output.
But inventory hides waste.  And a key lean driver of continuous improvement is to force the inventory out of the system.

Let’s assume that operation B, above, is the slowest operation and must be run two shifts in order to meet current demand, while operations A & C can meet demand with only one shift.  The traditional factory will run only operation B two shifts.  This will necessitate the build-up of inventory between operations.  Operation A will build inventory in front of “B” during the 1st shift. Operation B will build inventory in front of “C” during the 2nd shift.
How do we reduce this inventory between these operations?

Correct.  If we can’t speed up operation B, we’ll need to slow down operations A & C to match B’s rate of output (i.e. run “A” and “C” two shifts as well).  Note that this does NOT necessarily mean an increase in cost!  We’ll discuss the various techniques to accomplish this balance in another article.   Additional benefits of a multi-shift operation are discussed elsewhere.
Removing the inventory between operations DOES, however, make the individual operations DEPENDENT upon one another!

The assembly line is one of the most efficient forms of manufacturing.  And, as we drive the inventory out from between processes, the plant begins to take on the characteristics of an assembly line.  Each operation produces at the same rate and feeds their output to the next downstream operation, just in time.

Extending these same principles to our suppliers and customers, has the effect of making the entire value stream look and operate like an assembly line.
So, which process is the bottleneck operation in an assembly line?
Needless to say, EVERY operation is a potential bottleneck!  If ANY machine stops on an assembly line, the entire line stops.
The reason that a temporary disruption does NOT cause us to miss deliveries is the fact that we are NOT at capacity.  An hour of downtime may require an hour of overtime, but the schedule still can, and must, be met every day.

Lean Manufacturing gradually exposes the “rocks” (problems) and forces their resolution.  We do this by decreasing the buffers between operations.  As we just discussed, removing the buffers eventually makes EVERY operation a potential bottleneck.  Needless to say, this is a fundamental reason that Total Productive Maintenance (TPM), and related lean techniques, are such critical components of Lean.

minimizing inventory between operations makes them dependent

The critical point is that Lean Manufacturing strives to make the Entire Value Stream resemble an assembly line!
You can think of Lean as “forcing continuous improvement” by continuously creating another “bottleneck”.
Driving the inventory out of the system also forces the lean organization to become agile, and reliable.

Our post “Running Steel Lean” provides a more in-depth look at how TOC can be used, effectively, in a Lean environment.   It’s worth taking a few minutes to read.

One longer term Lean initiative is called “the RUBBER Factory,” a term coined by Brian Clements of Steelcase.  The idea is to create sufficient flexibility so as to enable a facility to quickly ratchet capacity up and down as the marketplace requires.  There are also a host of techniques that can be used to help “smooth” demand .  

In previous articles and videos on this site, we illustrated the major competitive advantages that Lean Manufacturing provides.

If your plant truly has a physical constraint, the Theory of Constraints (TOC) can be a powerful tool.  However, if you do NOT have a real physical constraint, TOC will have limited applicability.
Lean Manufacturing, on the other hand, is universally applicable.  If you truly wish to become a World Class Organization, there are few things that you can do that will deliver the kinds of results attainable by a committed transition to Lean manufacturing.

Now is the time to take action.  As Will Rogers eloquently said: “Even if you’re on the right track, you’ll get run over if you just sit there!”

Good luck on your lean journey!

NOTE:   If you are less than thrilled with your Lean Manufacturing / TOC results to date, you might want to check out our “Lean Bench Marking” article.   This is what you SHOULD EXPECT in the first 9-12 months!

Jack Harrison

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