Performance Improvement – A Five-Step Process Begins with the Bottleneck

­

Productive and effective operating systems within your business contribute to bottom-line results and financial success for the company. A firm’s financial results are constrained by the limiting bottlenecks. Anything that restricts the flow of productive work threatens profitability. Therefore, identifying and managing bottlenecks is key to business sustainability. The management discipline called Theory of Constraints, or TOC, offers a method to guide organizational change, based on reducing the negative impact of the system’s bottlenecks, first presented in the 1984 book, “The Goal” by Eliyahu M. Goldratt and Jeff Cox. Management would be well-advised to apply the five TOC steps to maximize earnings from the company’s operating systems.

The following is the first in a series of articles illustrating the implementation of the TOC process of ongoing improvement. The articles will include practical examples on how to identify the bottleneck in a company’s system of creating value, to exploit the constraint, to subordinate all other decisions, if necessary to elevate the constraint and finally to start over or go back to the beginning and find the next biggest issue to fix. The focus of this first article is on step number one: how to identify the bottleneck in your money-making value chain.

Step #1: Identify the Bottleneck. A bottleneck resource will limit your company’s ability to grow and earn income. Bottlenecks are not always obvious. Work-in-process can pile up ahead of the bottleneck, and workers in later processing stages may stand idle or work below their productions capacity. Identifying the bottleneck resource first will allow your company to begin the performance improvement process in a more effective manner. You will need to describe the bottleneck in quantitative terms, identify measures needed to support the bottleneck, seek out the underlying cause at the identification stage and focus on the conditions of the constraint.

If you can identify the bottlenecks that are slowing down your production system, you can speed up throughput and increase productivity. In every operating system, there is always one part of the process that’s the slowest. The bottlenecks you’re looking for are important to the effectiveness of the operation. Identifying and managing these bottlenecks will result in major performance improvements for your company.

Physical Constraints. In many operating companies, there’s an operational resource or a machine that has physical limitations that must be overcome in order to meet production demands. For example, a heat-treat furnace, a paint line or a plating operation may be physical constraints within a production process. A metal processing company that heat-treats component parts routed through this bottleneck cannot finish until this process is completed. There’s no going around this resource or skipping this step in the routine. Take care to manage the production flow according to the physical limitations of the bottleneck.

Accumulation. The production line process that accumulates the longest queue or wait time is usually a bottleneck. This method of identifying bottlenecks is especially useful for manufacturing lines that process individual items, such as a bottling line. In a bottling line, you can see where the bottles are accumulating and identify the machine that doesn’t have enough capacity, breaks down frequently or has an operator who needs training. When there are queues at several process steps, the bottleneck situation is more complex, and you have to use additional ways of identifying the most critical bottleneck in the production system.

Productivity Issues. Review equipment performance data to determine which equipment has the longest average cycle time. Remove time where the equipment is not operating due to external factors, such as being starved by an upstream process or blocked by a downstream process. Although such time affects throughput, the time loss is usually not caused or controlled by the starved or blocked equipment. Track and benchmark the productivity of your resources and investigate those with output less than demand to find the bottleneck.

Inventory. Often, inventory that’s stuck in front of a resource will indicate the system’s bottleneck. If your material expeditors usually find inventory waiting for resource time, the next step in the production process is a bottleneck resource. Where do you find your people going to free a logjam of parts needed to fill an order? Inventory will be accumulating in front of a bottleneck while it waits in line to be processed. Look for large accumulations of work-in-process on the plant floor.

Throughput. The throughput of an entire production system is directly linked to the output of the bottleneck resource. This characteristic lets you identify the main bottleneck of a manufacturing process. An increase in the output of a machine that is not a bottleneck has little effect on the overall production, because only the system’s bottleneck truly limits throughput. If you change the throughput of each of your machines one at a time, the machine that affects the overall output the most is the bottleneck.

Full Capacity. Most production systems keep track of the percentage utilization of each resource. A unit or machine has a fixed capacity and the manufacturing process uses each machine at a percentage of full capacity. The machine that uses the highest percentage of its capacity may be a bottleneck. Usually, this machine is running at or near full capacity while it operates as a bottleneck and limits the other production units to a lower capacity utilization rate. If you increase the capacity of the bottleneck machine, the capacity of the entire production line increases. Ask your operators or direct line supervisors where they think equipment is not keeping up with demand, and you will find the bottleneck here.

Wait Times. Sometimes, several of a production line’s units are running at high capacities, and you need a different method to find the bottleneck. The manufacturing process usually also tracks down times or waiting times for machines. When there is a bottleneck, the machine after the bottleneck has high wait times, because the bottleneck is holding up production, and the machine processing its output doesn’t get enough material to work continuously. When you find a machine with long waiting times, the step before the machine that’s waiting is a bottleneck.

Overtime. Which resource is required to work additional hours to maintain the flow of production? This resource will indicate a bottleneck. In the production process, you may have a work center or collection of operations that never seem to get caught up. This work center may be a bottleneck. Be careful not to overlook the cause of overtime work – an upstream resource, the true bottleneck, because of due date performance, may cause other resources to work overtime due to uneven material flow.

Expediting. Look for areas where process or parts expeditors are frequently involved. Special attention and handholding are often needed at the bottleneck to ensure that critical orders are completed on time. Look for the same factors, such as work piling up or work stations waiting for input. Remove any fixtures or processes that supported the original bottleneck condition.

When you implement performance improvement changes to address productive workflow, you must analyze and assess the true impact on the bottleneck’s performance. Be careful to apply improvement initiatives at the bottleneck first, where the need is greatest. Do not apply improvements equally across the entire production process – your company will waste limited time and money on resources that will not increase throughput. The TOC process is ongoing, a continuous improvement process devoted to maximizing workflow. Identifying the bottleneck in your operating system must be the first step in your performance improvement plan.

After your company has identified its primary bottleneck, continue with the next four performance improvement steps. Steps 2 through 5 will lead management to achieve breakthrough results toward overcoming bottlenecks. A focused performance improvement plan will create the cause-and effect-relationship for company growth and sustainability.

FGMK can help you identify bottlenecks that block your profit flow. Contact your FGMK partner, or our Performance Improvement practice lead, to see how your bottleneck is blocking increased profits at your company. Don’t wait for your competitors to improve their performance first. Go to FGMK for more information, or contact Allen Pratt directly.

About FGMK
FGMK is a leading professional services firm providing assurance, tax and advisory services to privately held businesses, global public companies, entrepreneurs, high-net-worth individuals and not-for-profit organizations. FGMK is among the largest accounting firms in Chicago and one of the top ranked accounting firms in the United States. For more than 40 years, FGMK has recommended strategies that give our clients a competitive edge. Our value proposition is to offer clients a hands-on operating model, with our most senior professionals actively involved in client service delivery.

Please visit our website for our complete list of services.

Search


Thought Leadership
Press Releases
Tax & Estate Planning Guide
Subscribe to Newsletter
Webinars