In another article published by iSixSigma, I proposed that implementing an integrated approach of Lean Six Sigma and theory of constraints (TOC) can lead to greater success for an
organization than the use of an independent Lean Six Sigma approach. Since that article was published, I have received multiple queries about how to apply this tactic in a practical
manner. During this time, I also have come across several critical business scenarios where implementation of this integrated approach proved beneficial.
This article uses those scenarios – one organization facing a project priority dilemma and another dealing with budget allocation woes – to help practitioners understand how
integrating TOC with Lean Six Sigma can ultimately make for a stronger deployment by easing certain decision-making processes.
1. An organization has used maps to document its processes, and has discovered it has more than 1,000 detailed-task-level processes. The key challenge for the organization is to
decide which processes to improve. Each of the processes has associated risks and inefficiencies, so analyzing and improving all the processes could turn into a futile exercise.
Thus, the big question is, “How to prioritize process analysis and improvement?”
2. A project sponsor has an information technology (IT) budget of $200 million to invest in their organization. The sponsor wants to distribute/allocate the money to five different
departments (functions). The key challenge is to understand how much money should be allocated to each department.
The common theme in both of the scenarios is the problem of focus – which processes should be improved, and which departments should receive money and how much. Without
the use of TOC, this lack of focus can result in local optimization, where capital investment does not bring global benefits and the company loses potential progress.
The problem of focus can be resolved by implementing TOC concepts. According to the theory, there are three basic metrics for any business: throughput, inventory and operational
expenses. TOC says that practitioners need to ensure that they look at all of these while improving the system in order to increase throughput, decrease system inventory and
decrease operational expenses.
Successful identification of the constraint (Step 1) helps practitioners to focus their improvement efforts. This is shown through the implementation of Step 1 in the first business
scenario.
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14
20
Note: Few numbers have been modified here for the sake of simplicity. The numbers do not impact the implementation.
For reference, Table 2 shows the metrics that were collected by the business before implementing the TOC concepts, and the improvement objectives derived from those metrics.
The improvement team started studying the L0 process map, and then moved forward with the following steps:
1. They measured the average monthly throughput within the defined tolerance limits.
2. They calculated the throughput capacity based on the average monthly throughput and productivity (resources utilization).
3. They established improvement objectives for each process step, based on the business objective of 28 percent improvement in revenue.
4. They also derived improvement triggers and priorities.
Table 3 represents the information collected and improvement objectives derived from that information.
Process L0 Level Average Monthly Throughput Improvement Objective Improvement Trigger Priority
Steps Throughput Capacity
Step 1 50,000 71,429 Reduce the throughput capacity if long-term plans don’t — 3
require this high capacity
Step 4 25,000 27,778 Increase throughput capacity to 32,000 once improvement Step 3’s throughput is improvement 2
trigger level is reached by 2,778
Because Step 3 must be improved first, the team only looked at the Level 1 process map for Step 3. This improved the focus – the total number of maps to be analyzed was reduced
from 1,020 at Level 3 to just 108 (the sum of the maps in Level 1, Step 3). The team then repeated the four actions listed above specifically for Step 3 at Level 1 (and then for Step 4,
following the priority set in Table 3) and improved the focus further.
The same process was repeated at Level 2 and then at Level 3. At the end of this exercise, the team had a list of the top 15 Level 3 processes that required improvement, having had
to analyze only about 100 processes at Level 3 to achieve this.
Additionally, they ensured that the operational expenses at each step were enough to support the capacity, which is always equivalent to capacity of the Level 0, Step 3 process. They
also implemented just-in-time production to ensure that inventory level was always around zero.
In the second scenario introduced above – that of a project sponsor looking to invest their IT budget – a similar strategy was implemented to help determine how much to allocate and
where in order to support the projects that will have the highest impact.
Integration Assurances
Using TOC in combination with Lean Six Sigma offers organizations the following benefits:
In short, TOC can be used as a filtration or prioritization framework for process improvement, budget allocation and variety of similar business scenarios.
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See Also
Comments
Gopal Ranjan
Very Nice Article….
Reply
Manoj Khandekar
Good One
Reply
Bhawna
Excellent followup to your first article. Keep it up.
Reply
Siddharth Fadnis
nice article sir
Reply
Kaustubh Jatadhar
Hi Dushyant
Thanks for highlighting how to apply TOC for process re-engineering. In the organization I work at, we also use certain metrics like Overall Operating Efficiency, Wait
Time, Resource Utilization to identify the processes with improvement opportunities. But the problem we face because of only relying on these metrics is we end up
neglecting some of the other processes which might offer actual re-engineering opportunities.
We are still trying to figure out whether we can find out any other metric which can help us identifying such re-engineering opportunities. Can Process Sigma be one of
these options which we can look at ?
Reply
Dushyant Thatte
Hello Kaustubh,
Thanks for highlighting the classic struggle between process level metrics and system level metrics. I agree that just by focusing at process level metrics, you
are probably not achieving the real system level benefits. From your notes, I think this is leading to frustration.
I recommend measuring system level metrics (namely Throughput, Inventory and Operational Expenses) to overcome this situation. In my opinion, just adding
more process level metrics will increase complexity without achievement of real results.
Regards,
Dushyant
Reply
Sergey
Simple and clear explanation how TOC and Six Sigma work, really like it!
Reply
Cutler McMartin
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Theory of Constraints Helps Set Project Priorities https://www.isixsigma.com/methodology/theory-of-constraints/theory-co...
Great article! I can definitely see myself using this approach when confronted with this many process maps.
Reply
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