Theory of Constraints for the R&M Industry
Eliyahu Goldratt, the author of “The Goal,” numerous other business novels, and the developer of the Theory of Constraints (TOC), is a physicist. The concept behind TOC is simply to apply the scientific understanding of effect-cause-effect on a business system in order to evaluate it and make incremental improvements with a focus on reducing inventory and operating expenses while improving throughput. He places his measurements squarely on those areas as they impact profitability, or, ‘what we are really trying to achieve is the making of more money.’
Within his novels and business books, Goldratt defines his view on science:
The search for a minimum number of assumptions that will enable us to explain, by direct logical deduction, the maximum number of natural phenomenon. These assumptions can never be proven (ie: gravitational law). Even when they can explain an infinite number of phenomenon, this does not make them ‘true.’ It simply makes them valid.
If one phenomena that cannot be explained makes the assumption false, it does not detract from the validity, it simply puts boundaries where the assumption is valid. Science does not concern itself with truths but with validity, which is why science is open to constant checks and challenges.
The key to the Theory of Constraints is often identified in five components of a process:
1. Identify the system’s constraint(s);
2. Decide how to Exploit the system’s constraint(s);
3. Subordinate everything else to the above decision;
4. Elevate the system’s constraint(s); and,
5. If in the previous steps a constraint has been broken, go back to Step 1. Do not allow Inertia to become a constraint.
Is change required as part of TOC? Most certainly, but it is often presented as significant changes that must be forced on an organization instead of the minor changes that, as Goldratt states, usually have major impact.
What is frequently avoided in the discussion related to TOC and consulting practices is that the TOC breaks down three fundamental issues that go along with the process and minor changes:
1. What to change;
2. What to change to; and,
3. How to cause the change.
Throughout “The Goal,” it is well established that Jonah, the consultant, provides coaching and guidance, but rarely ever answers or directly intervenes. As stated, these three steps are fundamental expectations of a manager and, “if a manager does not know how to answer those three questions, is he or she entitled to be called manager?” The additional lesson on the second to last line in the book is the realization that: “We should learn to be able to do it without any external help. I must learn these thinking processes, only then will I know that I’m doing my job.”
The concept is that the manager should be able to identify the real constraints on the system, often not the actual machines or people, but the actual policies and local measures that have an impact by understanding the root-causes of the constraint. The constraint has to be properly identified and, as in Root-Cause-Analysis (RCA) processes that we use in R&M, identifying the right question for the RCA is half of the process.
If solutions are addressed as dramatic ‘culture change,’ it will be seen as a perceived threat to security and will generate an emotional response and associated resistance to that change. If radical changes occur often enough, the result is ‘culture change fatigue,’ or ‘change fatigue,’ defined as a point where turnover begins to increase or employees /managers hold off on implementing improvements with the perception that it will change again, soon. The response is often the use of fear and insecurity in order to invoke a strong emotional response and corresponding change. Even though there is an impact, it is often short term and will result in ‘buyers remorse.’
Incremental changes, or paradigm shifts, must come from the enthusiastic positive emotional responses related to ‘made here,’ or buy-in, which is a stronger response that carries long-term results. This requires the participation of all parties, or stakeholders, at all levels with problems, solutions, and implementation decided by those participants. The three components involved in TOC change can then be broken down and identified this way:
1. What to change? Pinpoint the core problem;
2. To what to change to? Construct simple, practical, common-sense solutions; and,
3. How to cause the change? Induce the appropriate people to invent such solutions.
One of the interesting points in the book, when focused on the improvements to an ‘NX10’ machine, was that one of the key core problems were that the local efficiencies, coined in the 1990s as Key Performance Indicators, were actually a huge part of the problem. Inventory piled up and defects were high, and individual practices/workmanship was low because the work was performed to meet those efficiencies. Some of the immediate mistakes were that they attempted to circumvent the machine with machine solutions, such as placing additional machines in parallel with the key machine, and working harder. Overtime and inventory increased, employees and managers were upset, and the future of the factory was in question. With a little coaching, Jonah got them to realize that the solution was counter-intuitive, based upon the present use of measures, and that the entire process was a grid of interlocking chains where the weakest chain needed to be addressed. By changing different links in the chain, including allowing themselves to drop below KPIs in specific areas, they were able to increase their throughput. The antagonist had a fixation with KPI, but the stockholders and senior management were monitoring the true measure, as identified by Goldratt: Profitability.
Goldratt identifies the application of this process through his other books on how to apply TOC at all levels, including adding balance to your personal life and even academia.
How can such a process be applied to the R&M organization in order to have an impact on the company? First, we have to understand that R&M can be identified as one of the chains that interlinks with the other chains within the organization. The key is to be able to identify where R&M provides value and where it does not, with the value being simply how it impacts the profitability of the company and how it impacts inventory (ie: MRO), throughput, and operating costs. To do this, we must be able to identify the constraints in the maintenance organization.
Unfortunately, the latest direction is to apply local efficiencies in terms of R&M KPI and Wrench-time. The goals may be set, for instance, as a percentage completion of maintenance inspections, or driving up ‘wrench-time’ from 35% to a higher value. However, how do these goals address the actual value of the organization, or the maintenance system, impact on the profitability of the organization?
Let’s take two simple measures: 1) Completion of maintenance tasks must be 95%; and, 2) Wrench-time must be more than 50%. What do you think the impact will be on the maintenance organization? First, maintenance tasks will be selected that allow for completion, not necessarily in favor of improved throughput or reduced MRO. Inventory may increase and emergency orders required in order to meet the needs. Also, any tasks that require any level of prep or travel, or any other item that reduces wrench-time, will be low priority or not pursued at all. Nonsense! How could this happen?
Story 1: Implementation of a new CMMS system and the requirement that the maintenance manager had to meet a 95% completion level of maintenance. When visiting the site we noticed the air was extremely stale and that most of the roof-top ventilation fans were inoperative, reducing the air turnover in the facility to a dangerously low level. When asked, we were informed that the reason the fans were not in the system is that they would impact the completion rate and that if they did repair the fans outside of the CMMS, their wrench-time metric would fall.
Story 2: Promotion and raises for planners based upon completion rate of maintenance and wrench-time. They discovered that if they changed water fountain filters instead of pursuing air leaks (one instance of a great many at this location), they could achieve both measures. Air leak maintenance was eliminated from the maintenance organization and they began receiving accolades for meeting their measures from corporate. However, their energy group was chastised for increasing costs and the plant manager for reduced profitability. The plant was closed at a later date.
Does this mean that local measures should not be taken? That we should not work towards a balanced scorecard for our maintenance organization? No, it does not.
Measures are a method of reviewing the ‘dashboard’ of the operation of the organization. It can be used to help identify the constraints and root causes, but should never be the goal. As I have seen many times, in school, when teaching, in practice: you cannot manage what you cannot measure. However, the measurement is an indicator only.
It is important to remember that R&M is a chain in a group of chains in the organization. What can be done to improve the profitability of the company and what are my REAL constraints. If I state that I must have 55% wrench-time and I am operating at 40% wrench-time, what is the impact on the other links in the chain?
When I taught industrial engineering, and in practical application in my other positions from field service manager, department manager, sales organizations, I have learned that you must take a systems view in order to determine the value of a particular action on the profitability of the company. Sometimes the thought is to throw money or manpower at an issue. However, it has been demonstrated over and over again that there is an optimum solution, most often it requires the correct application of time, energy, or manpower with too little or too much having a negative effect. Other times solutions are often thought to require compromise.
Elyahu Goldratt, as described in his later discussions and books, refers to ‘evaporating clouds’ as part of the TOC. These are defined as the minimum number of changes required in order to ensure an environment where a problem simply cannot exist. He states that a majority of problems are ‘problems that arise whenever we try to satisfy local objectives that do not match, at all, the global goal.’ The global goal is, of course, profit.
Whenever we face a situation that requires compromise, there is always a simple solution that does not require compromise. In fact, when the term ‘you cannot have your cake and eat it too,’ or similar statement, is used, it is often evidence of a compromising solution. The idea is to change your view slightly (paradigm shift) to see that most things are not what they may appear at face value, and we may have just locked ourselves into a limitation because of experience or training. As Goldratt states, ‘God does not limit us, we limit ourselves.’
More is better, right? Often not the case. In all of the solutions identified within ‘The Goal,’ and the following business novels, the biggest leap that each of the protagonists must make is the realization that the answers are obvious and actually make more sense than pursuing the local efficiencies and measures as goals. That it is OK that a resource is ‘underutilized,’ so long as the underutilization goes along with a value for the company. When measures are used as part of your dashboard, what do they really mean and how are they defined? How are they applied?
The concept of the Theory of Constraints is another tool in your tool box. Make sure that you use the right hammer to put in that screw.
Within his novels and business books, Goldratt defines his view on science:
The search for a minimum number of assumptions that will enable us to explain, by direct logical deduction, the maximum number of natural phenomenon. These assumptions can never be proven (ie: gravitational law). Even when they can explain an infinite number of phenomenon, this does not make them ‘true.’ It simply makes them valid.
If one phenomena that cannot be explained makes the assumption false, it does not detract from the validity, it simply puts boundaries where the assumption is valid. Science does not concern itself with truths but with validity, which is why science is open to constant checks and challenges.
The key to the Theory of Constraints is often identified in five components of a process:
1. Identify the system’s constraint(s);
2. Decide how to Exploit the system’s constraint(s);
3. Subordinate everything else to the above decision;
4. Elevate the system’s constraint(s); and,
5. If in the previous steps a constraint has been broken, go back to Step 1. Do not allow Inertia to become a constraint.
Is change required as part of TOC? Most certainly, but it is often presented as significant changes that must be forced on an organization instead of the minor changes that, as Goldratt states, usually have major impact.
What is frequently avoided in the discussion related to TOC and consulting practices is that the TOC breaks down three fundamental issues that go along with the process and minor changes:
1. What to change;
2. What to change to; and,
3. How to cause the change.
Throughout “The Goal,” it is well established that Jonah, the consultant, provides coaching and guidance, but rarely ever answers or directly intervenes. As stated, these three steps are fundamental expectations of a manager and, “if a manager does not know how to answer those three questions, is he or she entitled to be called manager?” The additional lesson on the second to last line in the book is the realization that: “We should learn to be able to do it without any external help. I must learn these thinking processes, only then will I know that I’m doing my job.”
The concept is that the manager should be able to identify the real constraints on the system, often not the actual machines or people, but the actual policies and local measures that have an impact by understanding the root-causes of the constraint. The constraint has to be properly identified and, as in Root-Cause-Analysis (RCA) processes that we use in R&M, identifying the right question for the RCA is half of the process.
If solutions are addressed as dramatic ‘culture change,’ it will be seen as a perceived threat to security and will generate an emotional response and associated resistance to that change. If radical changes occur often enough, the result is ‘culture change fatigue,’ or ‘change fatigue,’ defined as a point where turnover begins to increase or employees /managers hold off on implementing improvements with the perception that it will change again, soon. The response is often the use of fear and insecurity in order to invoke a strong emotional response and corresponding change. Even though there is an impact, it is often short term and will result in ‘buyers remorse.’
Incremental changes, or paradigm shifts, must come from the enthusiastic positive emotional responses related to ‘made here,’ or buy-in, which is a stronger response that carries long-term results. This requires the participation of all parties, or stakeholders, at all levels with problems, solutions, and implementation decided by those participants. The three components involved in TOC change can then be broken down and identified this way:
1. What to change? Pinpoint the core problem;
2. To what to change to? Construct simple, practical, common-sense solutions; and,
3. How to cause the change? Induce the appropriate people to invent such solutions.
One of the interesting points in the book, when focused on the improvements to an ‘NX10’ machine, was that one of the key core problems were that the local efficiencies, coined in the 1990s as Key Performance Indicators, were actually a huge part of the problem. Inventory piled up and defects were high, and individual practices/workmanship was low because the work was performed to meet those efficiencies. Some of the immediate mistakes were that they attempted to circumvent the machine with machine solutions, such as placing additional machines in parallel with the key machine, and working harder. Overtime and inventory increased, employees and managers were upset, and the future of the factory was in question. With a little coaching, Jonah got them to realize that the solution was counter-intuitive, based upon the present use of measures, and that the entire process was a grid of interlocking chains where the weakest chain needed to be addressed. By changing different links in the chain, including allowing themselves to drop below KPIs in specific areas, they were able to increase their throughput. The antagonist had a fixation with KPI, but the stockholders and senior management were monitoring the true measure, as identified by Goldratt: Profitability.
Goldratt identifies the application of this process through his other books on how to apply TOC at all levels, including adding balance to your personal life and even academia.
How can such a process be applied to the R&M organization in order to have an impact on the company? First, we have to understand that R&M can be identified as one of the chains that interlinks with the other chains within the organization. The key is to be able to identify where R&M provides value and where it does not, with the value being simply how it impacts the profitability of the company and how it impacts inventory (ie: MRO), throughput, and operating costs. To do this, we must be able to identify the constraints in the maintenance organization.
Unfortunately, the latest direction is to apply local efficiencies in terms of R&M KPI and Wrench-time. The goals may be set, for instance, as a percentage completion of maintenance inspections, or driving up ‘wrench-time’ from 35% to a higher value. However, how do these goals address the actual value of the organization, or the maintenance system, impact on the profitability of the organization?
Let’s take two simple measures: 1) Completion of maintenance tasks must be 95%; and, 2) Wrench-time must be more than 50%. What do you think the impact will be on the maintenance organization? First, maintenance tasks will be selected that allow for completion, not necessarily in favor of improved throughput or reduced MRO. Inventory may increase and emergency orders required in order to meet the needs. Also, any tasks that require any level of prep or travel, or any other item that reduces wrench-time, will be low priority or not pursued at all. Nonsense! How could this happen?
Story 1: Implementation of a new CMMS system and the requirement that the maintenance manager had to meet a 95% completion level of maintenance. When visiting the site we noticed the air was extremely stale and that most of the roof-top ventilation fans were inoperative, reducing the air turnover in the facility to a dangerously low level. When asked, we were informed that the reason the fans were not in the system is that they would impact the completion rate and that if they did repair the fans outside of the CMMS, their wrench-time metric would fall.
Story 2: Promotion and raises for planners based upon completion rate of maintenance and wrench-time. They discovered that if they changed water fountain filters instead of pursuing air leaks (one instance of a great many at this location), they could achieve both measures. Air leak maintenance was eliminated from the maintenance organization and they began receiving accolades for meeting their measures from corporate. However, their energy group was chastised for increasing costs and the plant manager for reduced profitability. The plant was closed at a later date.
Does this mean that local measures should not be taken? That we should not work towards a balanced scorecard for our maintenance organization? No, it does not.
Measures are a method of reviewing the ‘dashboard’ of the operation of the organization. It can be used to help identify the constraints and root causes, but should never be the goal. As I have seen many times, in school, when teaching, in practice: you cannot manage what you cannot measure. However, the measurement is an indicator only.
It is important to remember that R&M is a chain in a group of chains in the organization. What can be done to improve the profitability of the company and what are my REAL constraints. If I state that I must have 55% wrench-time and I am operating at 40% wrench-time, what is the impact on the other links in the chain?
When I taught industrial engineering, and in practical application in my other positions from field service manager, department manager, sales organizations, I have learned that you must take a systems view in order to determine the value of a particular action on the profitability of the company. Sometimes the thought is to throw money or manpower at an issue. However, it has been demonstrated over and over again that there is an optimum solution, most often it requires the correct application of time, energy, or manpower with too little or too much having a negative effect. Other times solutions are often thought to require compromise.
Elyahu Goldratt, as described in his later discussions and books, refers to ‘evaporating clouds’ as part of the TOC. These are defined as the minimum number of changes required in order to ensure an environment where a problem simply cannot exist. He states that a majority of problems are ‘problems that arise whenever we try to satisfy local objectives that do not match, at all, the global goal.’ The global goal is, of course, profit.
Whenever we face a situation that requires compromise, there is always a simple solution that does not require compromise. In fact, when the term ‘you cannot have your cake and eat it too,’ or similar statement, is used, it is often evidence of a compromising solution. The idea is to change your view slightly (paradigm shift) to see that most things are not what they may appear at face value, and we may have just locked ourselves into a limitation because of experience or training. As Goldratt states, ‘God does not limit us, we limit ourselves.’
More is better, right? Often not the case. In all of the solutions identified within ‘The Goal,’ and the following business novels, the biggest leap that each of the protagonists must make is the realization that the answers are obvious and actually make more sense than pursuing the local efficiencies and measures as goals. That it is OK that a resource is ‘underutilized,’ so long as the underutilization goes along with a value for the company. When measures are used as part of your dashboard, what do they really mean and how are they defined? How are they applied?
The concept of the Theory of Constraints is another tool in your tool box. Make sure that you use the right hammer to put in that screw.
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