afraid I'm trying to jump to the next step, to develop them. De-
termining the management techniques must come from the need
itself, from examining how I currently operate and then trying to
find out how I should operate."
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"Any messages?" I ask Fran.
"Yes," she answers, to my surprise. "From Bill Peach. He
wants to talk to you."
I get him on the phone. "Hey Bill, what's up?"
"I just received your numbers for last month," he says.
"Congratulations hotshot, you definitely made your point. I've
never seen anything even remotely close to this."
"Thank you," I say pleased. "By the way, what are the results at Hilton Smyth's plant?"
"You must turn the dagger, huh?" he laughs. "As you pre-
dicted, Hilton is not doing too well. His indicators continue to
improve, but his bottom line continues to sink into the red."
I cannot contain myself, "I told you that those indicators are
based on local optimum and that they have nothing to do with
the global picture."
"I know, I know," he sighs. "As a matter of fact, I think that I knew it all along, but I guess an old mule like me needs to see the
proof in black and red. Well, I think that I've finally seen it."
"It's about time," I think to myself but to the phone I say,
"So what's next?"
"This is actually why I called you, Alex. I spent the entire day
yesterday with Ethan Frost. It seems that he's in agreement with
you, but I can't understand what he is talking about." Bill sounds
quite desperate. "There was a time that I thought I understood
all this mumbo jumbo of 'cost of goods sold' and variances, but
after yesterday, it's obvious that I don't. I need someone who can
explain it to me in straight terms, someone like you. You do un-
derstand all this, don't you?"
"I think I do," I answer. "Actually it is very simple. It's all a matter of. . . ."
"No, no," he interrupts me. "Not on the phone. Besides, you have to come here anyway—only one month left, you should get
familiar with the details of your new job."
"Tomorrow morning okay?"
"No problem," he answers. "And Alex, you have to explain
to me what you've done to Johnny Jons. He goes around claim-
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ing that we can make a lot of money if we sell below what it costs
us to produce. That is pure baloney."
I laugh, "See you tomorrow."
Bill Peach abandoning his precious indicators? This is some-
thing I have to tell everyone; they'll never believe it. I go to Don-
ovan's office, but he's not there, nor is Stacey. They must be on
the floor. I ask Fran to locate them. In the meantime I'm going to
Lou to tell him the news.
Stacey reaches me there. "Hey boss, we have some problems
here. Can we come in half an hour?"
"No rush," I say. "It's not so important, take your time."
"I don't agree," she says. "I'm afraid that it is important."
"What are you talking about?"
"It probably has started," she answers. "Bob and I will be in your office in half an hour. Okay?"
"Okay," I say, quite puzzled.
"Lou, do you know what's going on?" I ask.
"No." he says. "Unless of course, you're referring to the fact that Stacey and Bob have been busy for the last week, playing
expeditors."
"They are?"
"To make a long story short," Bob concludes the briefing of
the last hour, "already twelve work centers are on unplanned
overtime."
"The situation is out of control," Stacey continues. "Yesterday one order was not shipped on time, today three more will be
delayed for sure. According to Ralph, we're going downhill from
there. He claims that before the end of the month we'll miss the
shipping dates on about twenty percent of our orders, and not by
just one or two days."
I'm looking at my phone. It won't take more than a few days
and this monster will ring off the hook with furious complaints.
It's one thing to be consistently bad; the clients are used to it and
they protect themselves by stocks or time buffers. But now we
have spoiled them, they are already used to our good perfor-
mance.
This is much worse than I've imagined. It might ruin the
plant.
How did it happen? Where did I go astray?
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"How come?" I ask them.
"I told you," Bob says. "Order no. 49318 is stuck because
of . . ."
"No Bob," Stacey stops him. "It's not the details that are
important. We should look for the core problem. Alex, I think
that we simply accepted more orders than we can process."
"That's obvious," I say. "But how come? I thought we
checked that the bottlenecks have enough capacity. We also
checked your seven other problematic work centers. Did we make
a mistake in the calculations?"
"Probably," Bob answers.
"Not likely," is Stacey's response. "We checked and double
checked it."
"So?"
"So, I don't know," Bob says. "But it doesn't matter. We have to do something now, and fast."
"Yes, but what?" I'm a little impatient. "As long as we don't know what caused the situation, the best we can do is to throw
punches in all directions. That was our old mode of operation. I
had hoped that we learned better."
I accept their lack of response as agreement and continue,
"Let's call Lou and Ralph and move into the conference room.
We must put our heads together to figure out what is really going
on."
"Let's get the facts straight," Lou says after less than fifteen minutes. "Bob, are you convinced that you need to keep using so
much overtime?"
"The efforts of the last few days have convinced me that even
with overtime we are going to miss due dates," Bob answers.
"I see," Lou doesn't look too happy. "Ralph, are you con-
vinced that at the end of the month, in spite of the overtime, we
are going to be late on many orders?"
"If we don't find a smart way to solve this mess, without a
doubt," Ralph answers confidently. "I can't tell you the dollar
amount, that depends on Bob and Stacey's decisions of how
much overtime to use and which orders to expedite. But it is in
the neighborhood of over a million dollars."
"That's bad," Lou says. "I'll have to redo my forecast."
I throw him a murderous look. That is the major damage
that he sees? Redo the forecast!
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"Can we address the real issue?" I say in a freezing voice.
They all turn to me waiting.
"Listening again to what you're saying, I don't see a major
problem," I say. "It is obvious that we tried to swallow more than we ca
n chew. What we have to do is to determine by how much
and then compensate. It is as simple as that."
Lou nods his head in approval. Bob, Ralph, and Stacey con-
tinue to look at me with poker faces. They even look offended.
There must be something wrong in what I've said, but I can't see
what.
"Ralph, by how much are our bottlenecks overloaded?" I
ask.
"They're not overloaded," he says flatly.
"No problem there," I conclude. "So let . . ."
"He didn't say that," Stacey cuts me off.
"I don't understand," I say. "If the bottlenecks are not overloaded then . . ."
Maintaining an expressionless face she says, "From time to
time the bottlenecks are starved. Then the work comes to them in
a big wave."
"And then," Bob continues, "we don't have a choice but to
go into overtime. That's the case all over the plant. It looks like
the bottlenecks are moving all the time."
I sit quietly. What can we do now?
"If it were as easy as determining some overloads," Stacey
says, "don't you think we would easily solve it?"
She is right. I should have more confidence in them.
"My apologies," I mutter.
We sit quietly for a minute. Then Bob speaks up, "We can't
handle it by shuffling priorities and going into overtime. We've
already tried that for several days. It might help save some spe-
cific orders but it throws the entire plant into chaos and then
many more orders are in trouble."
"Yes," Stacey agrees. "Brute force seems to push us more
and more into the spiral. That's why we asked for this meeting."
I accept their criticism.
"Okay, it's obvious that we have to approach it systematically
Anyone got an idea where to begin?"
"Maybe we should start by examining a situation where we
have one bottleneck." Ralph suggests hesitantly.
"What's the point?" Bob objects. "We now have the opposite.
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We are facing many, traveling bottlenecks." It's apparent that
they've had that discussion before.
I don't have any other suggestion, nor does anybody else. I
decide to gamble on Ralph's hunch. It worked in the past.
"Please proceed," I say to Ralph.
He goes to the board and takes the eraser.
"At least don't erase the five steps," Bob protests.
"They don't seem to help us much," Ralph laughs nervously.
"Identify the system's constraints," he reads. "That is not the problem now. The problem is that the bottlenecks are moving all
over the place."
Nevertheless, he puts the eraser down and turns to the flip
chart. He draws a row of circles.
"Suppose that each circle represents a work center," he starts
to explain. "The tasks are flowing from the left to the right. Now,
let's suppose that this one is a bottleneck," and he marks one of
the middle circles with a big X.
"Very nice," says Bob sarcastically. "Now what?"
"Now let's introduce Murphy into the picture," Ralph re-
sponds calmly. "Suppose that Murphy hits directly on the bottle-
neck."
"Then the only thing left to do is to curse wholeheartedly,"
Bob spits. "Throughput is lost."
"Correct," Ralph says. "But what happens when Murphy
hits anywhere before the bottleneck? In such a case, the stream of
tasks to the bottleneck is temporarily stopped and the bottleneck
is starved. Isn't this our case?"
"Not at all," Bob brushes it away. "We never operated that
way. We always make sure that some inventory accumulates in
front of the bottleneck, so when an upstream resource goes down
for some time, the bottleneck can continue to work. As a matter of
fact, Ralph, we had so much inventory there that we had to choke
the material release to the floor. Come on," he says impatiently,
"that is exactly what you're doing on your computers. Why do we
have to regurgitate what we all know by heart?"
Ralph goes back to his seat. "I just wondered if we really
know how much inventory we should allow to accumulate in
front of the bottlenecks?"
"Bob, he has a point," Stacey remarks.
"Of course I have," Ralph is really annoyed. "We wanted
three days' inventory in front of each bottleneck. I started with
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releasing material two weeks before it was due at the bottleneck.
Then it turned out that that's too much, so I cut it to one week
and everything was okay. Now it's not okay."
"So increase it back," Bob says.
"I can't," Ralph sounds desperate. "It will increase our lead time beyond what we currently promise."
"What's the difference?" Bob roars. "In any event we're sliding on our promises."
"Wait, wait," I cut into their quarrel. "Before we do anything drastic, I want to understand better. Ralph, let's go back to your
picture. As Bob pointed out, we do hold some stock in front of
the bottleneck. Now let's suppose that Murphy hits somewhere
before the bottleneck, then what?"
"Then," Ralph says patiently, "the flow of parts to the bottleneck stops, but the bottleneck, using the stock that accumulated
right in front of it, continues to work. Of course that eats into the
stock and so, if we don't build enough stock to start with, the
bottleneck might go down."
"Something doesn't match." Stacey says. "According to what
you just said, we have to guarantee the uninterrupted work of the
bottleneck by building stock that will last more than the time to
overcome Murphy on the upstream resource."
"Correct," says Ralph.
"Don't you see that it can't be the explanation?" Stacey says.
"Why?" Ralph doesn't get it, and neither do I.
"Because the time to overcome a problem upstream did not
change, we haven't faced any major catastrophies lately. So if the
stock was sufficient to protect the bottlenecks before, it must be
sufficient now as well. No Ralph, it's not a matter of insufficient
stocks, it's simply new wandering bottlenecks."
"I guess you're right."
Maybe Ralph is convinced by Stacey's argument, but I'm not.
"I think that Ralph might be right after all," I say. "We just have to carry his line of thought a little further. We said that
when one of the upstream resources goes down, the bottleneck
starts to eat into its stock. Once the problem is corrected, what do
all the upstream resources have to do? Remember, if there is one
thing that we can be sure of, it's that Murphy will strike again."
"All upstream resources," Stacey answers, "now have to re-
build the inventory in front of the bottleneck, before Murphy hits
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again. But what's the problem? We released enough material for
them."
"It's not the material that concerns me," I say. "It's the capacity. You see, when the problem that cau
sed the stoppage is
overcome, the upstream resources not only have to supply the
current consumption of the bottleneck, at the same time they
have to rebuild the inventory."
"That's right," Bob beams. "That means that there are times when the non-bottlenecks must have more capacity than the bottlenecks. ./Vo w I understand. The fact that we have bottlenecks
and non-bottlenecks is not because we designed the plant very
poorly. It's a must. If the upstream resources don't have spare
capacity, we won't be able to utilize even one single resource to
the maximum; starvation will preclude it."
"Yes," Ralph says. "But now the question is, how much spare capacity do we need?"
"No, that is not the question," I gently correct him. "Just as your previous question, 'how much inventory do we need?' is not
the real question either."
"I see," Stacey says thoughtfully. "It's a trade-off. The more inventory we allow before the bottleneck, the more time is available for upstream resources to catch up, and so, on average, they
need less spare capacity. The more inventory the less spare ca-
pacity and vice versa."
"Now it's clear what's happening," Bob continues. "The new
orders have changed the balance. We took more orders, which by
themselves didn't turn any resource into a new bottleneck, but
they did drastically reduce the amount of spare capacity on the
non-bottlenecks, and we didn't compensate with increased inven-
tory in front of the bottleneck."
Everybody agrees. As usual, when the answer finally emerges
it's plain common sense.
"Okay Bob," I say. "What do you think you should do now?"
He takes his time. We wait.
Finally he turns to Ralph and says, "We have outstanding
promises for very short delivery times on only a small percent of
our order intake. Can you identify those orders on an on-going
basis?"
"No problem," answers Ralph.
"Okay," Bob continues. "For those orders, continue to re-
lease material one week in advance. For all others, increase it to
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two weeks. Let's hope that that will be enough. Now, we have to
rebuild the inventory in front of the bottlenecks and in front of
assembly. Stacey, take all the necessary steps to put the plant, and
I mean all the non-bottlenecks, to work throughout the weekend.
Don't accept any excuses, it's an emergency. I'll notify sales that
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