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Breaking the Bottleneck!
10 profitable ways to use the
'Theory of Constraints' in Services
Breaking the Bottleneck!
10 profitable ways to use the Theory of Constraints in Services
Neil R Jamieson, MA MBA
ChangeNRJ Ltd
Original book published by ChangeNRJ Ltd,
reference ISBN: 978-0-9555333-0-3
ChangeNRJ Ltd, 2nd Floor, 145-157 St John Street, London, EC1V 4PY
www.changenrj.com
Copyright © Neil R Jamieson, 2007
All rights reserved
The moral rights of the author has been asserted
This book is sold subject to the condition that it shall not, by way of trade or otherwise, be lent, re-sold, hired out, or otherwise circulated without the publisher’s prior consent in any form (including electronic).
References/quotes taken from “The Goal” are with the permission of North River Press.
Table of Contents
Executive Summary
Acknowledgements
Glossary
Preface
Chapter 1: Introduction: “The Goal” Released 01/02/09
Chapter 2: “Theory of Constraints” Released 01/03/09
Chapter 3: Secret Solution No1: Control your workflow! Released 01/04/09
Chapter 4: Secret Solution No2: Right first time! Released 01/05/09
Chapter 5: Secret Solution No3: Target the Herbie!
Chapter 6: Secret Solution No4: Have nothing to do!
Chapter 7: Secret Solution No5: Global solutions deliver the biggest value!
Chapter 8: Secret Solution No6: Beyond cost accounting!
Chapter 9: Secret Solution No7: Local adds value too!
Chapter 10: Secret Solution No8: Price the service proposition properly!
Chapter 11: Secret Solution No9: The true bottleneck!
Chapter 12: Secret Solution No10: Doh! We did this!
Chapter 13: Conclusion: The Goal
Bibliography
The “Theory of Constraints”, devised by E.M. Goldratt and J. Cox, and popularised through the business novel “The Goal”, reprioritises what managers should be concentrating on.
The key drivers - in priority order - are Throughput, Inventory and Operating Expense. The metaphor of the bottleneck is used to convey the premise that only by altering the bottleneck does a company increase Throughput, and ultimately deliver superior shareholder value.
Now, all theories should be repeatable and transferable. “The Goal” was set in a fictitious U.S. manufacturing branch plant. Available research shows that almost without exception, companies who have applied the Theory have significantly improved profits. To realise this though, it is important for leaders - that’s YOU - to identify the KEY constraint and work top-down to elevate it. Incremental improvements across the board will not deliver.
Ask yourself this. At the next budget/project/investment/cost-cutting round, are you going to solve your biggest problem or spread the money around all parts of the business?
In challenging convention, Goldratt’s “Theory of Constraints” offers competitive advantage, and as such is a valuable management tool.
References/quotes taken from “The Goal” refer to the Gower 2nd edition. References from “The Goal” are with the permission of North River Press.
I wish to thank Phil Bowers, University of Edinburgh, in both his capacity as the lecturer who introduced me to the “Theory of Constraints” and as the MBA dissertation adviser for his guidance and help through my own “bottlenecks”. The resulting dissertation was top in class. This book draws on that research, together with more recent experiences, and Phil’s kind review of the near final draft of this version.
I also acknowledge those at the financial services company – referred to as Warrender Financial - that provided the access and support in the original endeavour. And those in other service environments that have helped cement the belief that even at the basic conceptual level, the Theory of Constraints and the bottleneck metaphor really do add value.
I also wish to thank my parents for their support, interest and understanding. And to those friends and acquaintances that follow the same path of curiosity, passion, and willingness to challenge limiting beliefs! Keep stepping up!
“It’s amazing how long it takes to complete something you’re not working on.” R.D. Clyde
Glossary
Whilst I have tried to minimise the use of jargon, the following terms may be of use.
ABC: Activity Based Costing.
Backlog: Customer requests/orders not yet issued. Consists of both started work (WIP) and work awaiting action.
Benchmarking: Taking the performance of other companies / industries as a base for measuring your success.
Bottleneck: Metaphor for the constraint. Also known as “Herbie”.
Callback: Returning a customer call that was not able to be resolved immediately.
Elevate: Increase the ability to deliver Throughput.
FTE: Full Time Equivalent, a measure of staffing numbers.
GOS: Grade Of Service. How quickly you answer the phone in your designated service standard (usually within 4 rings).
Herbie: The constraint, as detailed in the Boy Scout walk in “The Goal”.
I: Inventory.
JIT: Just-In-Time.
MRP: Materials Resource Planning.
OE: Operating Expense.
T: Throughput.
Theory of Constraints: Theory focused on increasing Throughput through the elevation of constraints.
ToC: Theory of Constraints.
TQM: Total Quality Management.
WIP: Work In Progress.
To avoid confusion, the following may help. In the UK we call “a line” (eg people standing in a line to buy something) “a queue”. So if it aids your understanding, when you see the word queue, think of a line or people or work waiting for service. I have reserved the term “line” to refer more to a process, such as a production line, rather than something awaiting action.
Preface
This publication stems from the original research carried out as part of my MBA in 2000/2001. Since then I have taken the basics and used them to solve diverse business issues such as teams with backlogs and how to get value out of IT systems. Whilst the research was on a U.K. based financial services company, the more I read, and as my career developed, I kept realising that the Theory of Constraints would work in almost any situation. And in realising this, the more valuable it seemed to revisit the research and adapt it to share with you now.
I hope that, like me, you are inquisitive and prepared to question the way we do things. It would be great if as you read, you learn, think, write ideas down and decide to use – at the very least – the basic concepts set out here. To that end, I have worked on making it as simple as possible to follow the arguments, even though we are looking here at the less clear-cut world of “services”. I have also laid it out in a way that makes it easy to read.
As with the rest of life, your commitment to it will be reflected in what you get out of it. I have scattered choice questions throughout. I want you to stop. I want you to think, and then act. The “goal” is not to race through, or skim read; it is to get you thinking, and to take action.
Oh, and have fun!
Neil
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