A Goal Game - The Theory Of Constraints

A GOAL GAME

TOC E XECUTIVE C HALLENGE A Goal Game by John Tripp

There is now a new game on line for instant download that enables you to test the simulator supplied with this book before purchasing the whole book. Click here to go to the downloadable game.

TOC Executive Challenge: A Goal Game, an educational simulator by John Tripp.

Copyright © 2007 John Tripp ISBN: 0-88427-176-5

All rights reserved. No part of this book may be reproduced or utilised in any form or by any means, electronic or mechanical, including photocopying, recording, or any information storage retrieval system, without permission in writing from the publisher.

The North River Press Publishing Corporation P. O. Box 567 Great Barrington, MA 01230 (800) 486-2665 (413) 528-0034 www.northriverpress.com

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A GOAL GAME

Acknowledgements This simulation and book is based entirely on the work of Dr Eliyahu M. Goldratt and on our experience gained in working with customers from all types of organisations both for and not for profit. Throughout the book… 

The teaching or mentoring elements - questions, forms, tips for students – are freely adapted from a wide variety of classroom materials developed by many TOC people all around the world, including Dr Goldratt and John Tripp. Special thanks should be given to Susan Tripp for the hours spent editing and testing the book game interface, the challenges, and conclusions.

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Also from North River Press WWW.NORTHRIVERPRESS.COM Many Theory Of Constraints books, tapes, and other material are available. Authors include researchers and practitioners of TOC in banking, education, health care, and the stock market. Books by Dr Goldratt include: The Goal The Race The Theory Of Constraints The Haystack Syndrome Critical Chain Its Not Luck Necessary But Not Sufficient

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Contents Introduction................................................................................................................1 TOC Applications..................................................................................................1 TOC Measures........................................................................................................2 The Five Focusing Steps of TOC..........................................................................4 The Process of On-Going Improvement (POOGI)............................................4 The Challenge Environment................................................................................6 Operating The Challenge Program.....................................................................7 The Challenges.........................................................................................................11 Challenge 1 - The Perfect World Plant..............................................................11 Challenge 1 – Results & Explanation................................................................14 Challenge 2 - The Balanced Capacity Plant.....................................................19 Challenge 2 – Results & Explanation................................................................23 Challenge 3 –The Efficient Plant........................................................................26 Challenge 3 – Results & Explanation................................................................27 Challenge 4 –The Unbalanced Capacity Line..................................................30 Challenge 4 – Results & Explanation................................................................32 Challenge 5 –Applying the TOC Solution (DBR)............................................34 Challenge 5 – Results & Explanation................................................................39 Challenge 6 – Implementing the TOC Solution (DBR)...................................43 Challenge 6 – Results & Explanation................................................................46 Challenge 7 – Further Questions To Explore...................................................48 Implementing TOC..............................................................................................49 Appendix..................................................................................................................50 Simulator Controls...............................................................................................50 Install.....................................................................................................................55 Uninstall................................................................................................................55 TOC Glossary.......................................................................................................56

TOC EXECUTIVE CHALLENGE A GOAL GAME

Introduction The Goal was written in 1984. Since then many millions of people from all walks of life have read it. The Goal remains a best seller today. The Goal has sustained success partly because it brings valuable new knowledge in a form that is easy and fun to acquire and partly because it is a good read. Alex Rogo the protagonist in The Goal works with his mentor Jonah to save his plant. The TOC Executive Challenge book and software is designed to help you apply TOC. Like The Goal it is easy and fun to follow. It also provides you with the chance to test The Goal TOC theory. Does it really work? The book leads you through a series of seven challenges that teach the different aspects of the TOC application portrayed in The Goal. The software provides the test world for you to undertake the challenges. As you play the challenges your understanding of TOC and the mind set needed to make big benefits from it develops. When you have a picture of the TOC solution the software provides a safe place to practice how it should be implemented in the real world. The book provides the explanations needed to fully understand the challenges. The book provides a process to guide implementation in the real world. Figure i: TOC Applications Production Performance Measurement Projects Distribution Marketing Sales and Buy In People Management Strategy Viable Vision

TOC A P P L I C A T I O N S TOC is introduced in The Goal through a production plant. The protagonist Alex Rogo uses aspects of the TOC production application to improve the performance of his plant. Alex leads his team to increase profit in two ways: firstly, by making better use of the people and machines he has in the plant, and secondly, by helping the company win more sales. This book challenges you to do the same in the simulated plants provided by the software. Then it goes on to explain how to do it in the real world.

The Goal and this learning package are set in production plants because production is a good environment to explain what TOC is. You should not conclude from, that TOC is only for production. There are nine generic TOC applications that deal with 1

TOC EXECUTIVE CHALLENGE

different types of organisation or deal with different parts of an organisation, and only one of these is directed at production. TOC is not specific to any one type of organisation or industry. TOC is bound together by a strong mind set and a set of thinking processes that can potentially deal with any area of human endeavour. Put most directly TOC is a process for creating processes of improvement. What you are learning as you go through this book is an improvement process. A process that can generate large benefits rapidly that last and become the foundation of ongoing improvement. Each TOC process is answering in sequence the three questions listed here: 1. What to change? (What is the Problem?) 2. To What to change? (What is the Solution?) 3. How to cause the right people to make the change? (How to Implement?)

TOC M E A S U R E S In chapter 4 of The Goal, Alex meets Jonah, who introduces him to three new measures: Throughput, Inventory, and Operating Expense. To run the challenges you will need to understand these three measures and how they relate to the bottom line measures of Profit, Return On Investment and Cash Flow. Figure ii Bottom Line Bridge T, I, & OE.

Throughput (T) is the rate at which the system generates money. T is calculated simply by subtracting the direct costs (usually material) from the sales price. T is the money a company gets to keep when it sells a product or service. The rest of the money received from a sales flows through the business and out to suppliers. Inventory (I) is all the money invested in things that the organisation intends to sell. 1

Operating Expense (OE) is all the money poured in continuously to convert I into T. Diagram 1 shows the relationship between the three TOC measures and the bottom line measures. The TOC measures are easy to obtain and are a very effective bridge between local actions and bottom line results. The three measures should be used to improve decision taking. The type of decision taking T, I, and OE will improve include: 1

The word Inventory was used, as at the time these measures were established it was inventory that was in need of reduction in most companies and it was the single factor of investment most in the control of operational managers. 2

A GOAL GAME

•

Investment Payback analysis

•

Make versus Buy analysis

•

Price Profitability analysis

To calculate the impact on the bottom line, of given values of T, I, and OE, use these formula: Table 1: Bottom Line Impact From T, I & OE

Profit = Return On Investment =

Cash Flow =

Throughput – Operating Expense

Throughput - Operating Expense Inventory (Throughput - Operating Expense) + Inventory (reduction)

In most situations where T, I, and OE are used it is not the absolute value of P or ROI being calculated. It is the change or potential change that is of interest. So in this case it is the change in T, I, and OE that is used in the formula (∆ = Delta small change). Table 2: Improvement Bottom Line Impact

∆P =

∆T – ∆OE

∆ROI =

∆T – ∆OE ∆I

∆CF =

(∆T – ∆OE) + ∆I

As was stated above TOC is a process for creating processes of improvement. In this programme we are introducing the Theory Of Constraints through production situations and challenges. A production environment (and most other organisations) is analogous to a chain. There are many links that need to work together to achieve the goal of the organisation and like in a chain it will break at the weakest link. To improve the performance of a chain, to make it stronger, you must first find and the weakest link. This is the first step of the TOC process of ongoing improvement or POOGI. You will need to understand this process and the measures above to do well in the challenges…

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TOC EXECUTIVE CHALLENGE

THE FIVE FOCUSING STEPS

OF

TOC

The Theory of Constraints is a Process Of OnGoing Improvement. There are five steps in the process, which is sometimes referred to as POOGI. The steps are as follows: 1.

Identify the system constraint.

2.

Decide how to exploit the system constraint.

3.

Subordinate everything to the above decision.

4.

Elevate the system constraint until it is “broken” or solved.

5.

Don’t let inertia become the system constraint!

THE PROCESS

OF

O N -G O I N G I M P R O V E M E N T (POOGI)

What does it mean? If you’ve read The Goal, you probably have an intuitive understanding of these steps. However, it’s possible that you have not seen them expressed formally — that is, step-by-step — before. The Five Focusing Steps, or POOGI, form the foundation of any real-life application of the Theory of Constraints. Step 1: Identify the [Systems] constraint. Consider the analogy of a chain. What determines its overall strength? The weakest link. Let’s say you have a chain, and you want to improve the strength of the chain. What must always be your first step? Find the weakest link. This link is the systems constraint. Step 2: Decide how to exploit the constraint. Having identified the weakest link it is necessary to create a process that ensures it used to the full – we use the term exploit to emphasis the importance of this step. In the Goal Jonah demonstrated how important the constrain was by calculating the value of a lost bottleneck hour. If the constraint is a poor policy or lack of market demand you need to find out how to exploit the knowledge of the constraint not the constraint itself. Step 3: Subordinate everything else to the decisions made to exploit constraint. The elements that are not weakest must support what you do to with the weakest link. You must subordinate everything else to ensure the decisions made to exploit the constraint can be followed. It is worth noting that step one and two only involve a few people – step three requires everyone else in the system to behave differently – this is a major step and is often the most difficult to implement.

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Step 4: Elevate the Systems constraint. Once the first three steps are implemented – the system will perform much better and as such the market will be much more satisfied with the organisations performance. It is highly likely that demand will increase. If demand increases it is unavoidable that the constraint must be elevated. In practical terms you need to prepare for this event. Step 5: Warning Do Not let Inertia become the constraint of the system! What would happen I a chain if you made the weakest link stronger – there might be another weakest link. Therefore, if in any of the previous steps the constraint is elevated or broken you must assume that there might be a different constraint – you must check to ensure that you have still identified the correct system constraint. In The Goal the constraint moved from the plant to the market. The warning in Step 5 is there because it is all too easy if you have made a big improvement to sit back and relax. After all your lead time is down your inventory is down profits are up customers are satisfied more than ever. Why look for trouble! The great lesson of step 5 is that you can never “rest on your laurels.” If you stop trying after one round of POOGI, inertia becomes the constraint. But words are never enough try to use these few introductory lesson in TOC in the simulator. Undertake the seven challenges using the TOC measures and the TOC five-step process, try to think about how to turn the process into concrete steps for you own organisation. If you are ready it is time to take on challenge 1.

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TOC EXECUTIVE CHALLENGE

THE CHALLENGE ENVIRONMENT The challenge program provides four production environment models. The challenge 1 model is shown in Figure iii: The Challenge Board. Each model is a simple yet accurate representation of what occurs when a product is made in a manufacturing plant. The model is made up of a series of dependent tasks needed to make a product. Figure iii: The Challenge Board

The model has all the components of a production business. There is customer demand, in challenge 1 the demand is for brief cases, and executive cases. There are resources to undertake work. There is limited time to achieve the output needed. The time limitation is 40 hours and this is the same in all seven challenges. Each challenge is run over 5 days that are 8 hours long. There are limits to how much cash is available and the financial performance of the business is monitored throughout. The goal in each challenge is to make the maximum amount of money possible. The big difference between the real world and this model is that you have a much better overview in the model than in a real business. In addition the area to the left of 6

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the two product images above provides a complete live flow picture, which is not available in most plants. In this are you can see the material which is purchased at the left had side of the challenge board, progressing across the board (left to right) as the various tasks are assigned to resources arriving in the box immediately to the left of a product image, when it has completed all its production stages . The boxes in the flow area represent the task that need to be undertaken by the resources in the factory floor. The colour of the task matches the colour of the resource that undertakes the task.

OPERATING THE CHALLENGE PROGRAM To operate the challenges you need to understand the challenge controls and how to do three things: 1. How to identify a task in the flow diagram area of the challenge board 2. How to assign tasks to resources 3. How to buy the materials needed The three control areas that you need to operate, these are: 1. The run controls in the Clock area of the challenge board. 2. The resources set up and stop functions in the Factory Floor area 3. The purchase area functions. To operate any other control than the run controls the challenge must have started. You will be guided through the things you need to know once you have opened the Challenge Program. When you are ready to begin, the challenge program can be opened via a link on the Goldratt-TOC Ltd program group which was created during the install process. The set up process creates a program group and a program link on the all Programs link on the windows Start menu. Start > all Programs > Goldratt-TOC Ltd > A Goal Challenge v2 Figure iv Challenge Control

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The program will open a 2splash form which displays whilst the main program loads. After a short time you will see the Challenge Control which provides links to the various Challenges. Use the information in Appendix 1 for more challenge operating instructions.

You can click to close the splash form or it will close after a few seconds automatically 7

TOC EXECUTIVE CHALLENGE

Each time a Challenge is started the Challenge control form is hidden. To open or unhide the Challenge control form use the File menu on the Challenge board. File > Challenge Control. The Challenge you want to run is selected from the Challenge bar at the top of the form or click the next button which will automatically take you to the next Challenge in the sequence.

GETTING STARTED To get to known the challenge controls please select challenge 1 now. The challenge as shown in Figure iii above should open when you click the number 1 in the challenge bar on the Challenge control form shown in Figure iv above. Please follow the instructions below to learn how to start the challenge run, to set up a machine and to learn how to buy material. Start the challenge by clicking the run start button in the clock area highlighted on the challenge board to the right of this paragraph. You will see the clock begins to run. Now point to and click on the Blue machine (number 3) in the Factory Floor. A 3set up form will open. Click on the drop down button at the right of the Select Task box and click on the r1: c4 item in the list. The r1: c4 is the coordinate of the task. If you look at the left hand side of the challenge board you will see the rows which are labelled r1, r2, r3, r4, r5, and r6. If you look just below the factory area you will see the columns of labelled c1, c2, c3, c4, c5, c6, and c7. To locate the task at r1: c1 move along the row r1 until you are just below the column c1, the task referred to by this code is the where the row and column in intersect. Then click the Close/Restart button. The machine will display a set up icon. After a simulated 15 minutes of setting the resource will start working on the task. A person busy icon appears on the machine button. When the material runs out the machine will display an idle person icon. To

A resource setting for a task

A resource working on a task An idle resource, waiting for work

Alternatively, it is possible to click and drag the task to set up from the flow diagram area below the resources to the machine of the same colour as the task. 3

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understand what all the elements in the factory floor are please point at each now and read the pop up comment that appears. Now click on the white square to the right of the r1 row indicator in the purchasing area. A purchase form will open. Enter a number ten into the white box on the purchase form and click the Buy/Close button. Ten units of raw material r1 will appear in the white square next to the r1 row indicator in the purchasing area and $45 X 10 = $450 will be deducted from your cash position. This can be seen in the Finance area at the top and to the right of the challenge board. The cash position at the start of the challenge was $2,500 it will be $2,050 when the purchase suggested above has been completed. On now know how to buy materials, and set up machines. When you run the challenge you will want to assign task to resources to achieve the overall goal of the challenge, which will require you to have product manufactured and sold. The task map is shown in the Flow Diagram Area below the Factory Floor explains how this is achieved. The flow diagram describes how the products are made. It shows what materials are needed for each product, it shows the tasks and the time that a tasks takes to be completed. Point to and pause over the elements in the Flow area now and read the pop up comment to see what each part is. You will find tasks names, the time a task tasks, you will also see that the cursor changes to a hand when you pause over the task button. The hand indicates that you can drag that task to and drop it on a resource. When the drag icon is dropped on a resource this tells the resource to set up for that task. The resource must be the same colour as the task for this process to work. You will also see that in challenge 1 you need to make and sell 45 brief cases and 45 executive cases. If you look in the flow area just to the left of the product images you will see the market demand and the selling price for the product. The brief case selling price is $200 and the market demand is 45. Following the black lines along the tasks back from the product enables you to identify all the tasks that need to be completed in order to make that product. When you reach the extreme left hand side you will see the materials that are needed for that product. For example the Brief case task line is: r1: c7, r1: c6, r1: c5, r1: c4, r2: c2 and r2: c2 requires one unit from r1: c1 and r3: c1 as it is an assembly operation. To make r1: c1 you need to buy one unit of raw material, which we have called r1 as it is

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TOC EXECUTIVE CHALLENGE

next to the r1 row indicator. Similarly, to make one unit of r3: c1 you need to buy one unit of raw material r3. Whilst the challenge is open take this opportunity to play. Buy materials, set up tasks and produce some product, learn to operate the challenge controls. Don’t worry about trying to make a lot of money just take some time to familiarise yourself with how to run the challenge. When you feel ready move on to the challenge section of the book. The next section in this book will guide you through each challenge. Record your results in the space provided as you work. Further on in the text for each challenge we provide results explanations and conclusions. You should not read these until you have undertaken the challenge in the software.

There is now a new game on line for instant download that enables you to test the simulator supplied with this book before purchasing the whole book. Click here to go to the downloadable game.

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A GOAL GAME

The Challenges

CHALLENGE 1 - THE PERFECT WORLD PLANT If the challenge program is open close it and start it again. Then select challenge 1 from the challenge control form. The objective in Challenge One is to manage the resources in the plant to achieve maximum profit. Challenge One is played (in common with all the Challenges) for five days. Each day has eight hours (also a common factor in each Challenge). Refer to Appendix 1 for challenge operating instructions. You can also point to each of the items on the Challenge board and read the tool tip that pops up to learn what each item is. The Challenges are designed to teach specific elements of TOC and to be fun to play. Challenge 1 is designed for you to check whether the reasons traditionally given to explain why production is difficult to manage, are in fact the true reasons. Before running the Challenge read through the list of problems in Table 1 that experienced production people claim are the things that make production really challenging. Because none of these problems exist in the challenge. Table 3: A Typical List Of The Problems That Make Managing Production Difficult

Vendors are late with materials

Machines break down

Workers are absent from work

Quality is poor

Customers change their minds

Work must be re-done

Operators are poorly trained and undisciplined

Data is unavailable or inaccurate

Now return to the simulator and play Challenge 1.

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TOC EXECUTIVE CHALLENGE

You will be pleased to hear that the perfect world conditions below exist in Challenge 1: 

Supplies are always on time



Workers are never absent



Customers never changed their mind



Operators are well-trained and disciplined



Machines never break down



Quality is perfect



Data is always available and always accurate

In addition, the plant only has ten resources, two products and three raw materials. You have a complete overview, you control all the policies and you make all the decisions. It should be a piece of cake! Lets See… There is a form below to record your run results. When you complete Challenge 1 record your results below and then answer the questions listed below the results table. Table 4: Challenge 1 Results Results

Run Result Units

Price

Briefcase Sales

$200.00

Executive Case Sales

$300.00

Units × Price

Total Sales Income Material in Sales Total Throughput (Sales – Material) Profit Cash Inventory Operating Expense Number of Breakdowns Percent of total capacity lost

Please answer the questions below about the run. 12

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Was it easy to manage this perfect plant?

If not what made it difficult?

What prompted you to take an action?

If Work In Process (WIP) built up in front of a task did you respond and set up a resource to process the material? If a resource became idle did you respond by looking to find it more work?

Did you feel frustrated if you could not get an idle resource working immediately? Has inventory increased or decreased (start value $ 1,250)?

Did you supply all the market demand?

Did cash improve (you had at least $ 2,500 at the start)?

Do you have sufficient inventory in place so that you are able to start the next week? Ideally there should be 5 units after r2: c2 and 15 units after r5:c3.

Feel free to run the challenge again but read through the Challenge results and explanations below before moving onto challenge 2.

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TOC EXECUTIVE CHALLENGE

CHALLENGE 1 – RESULTS & EXPLANATION THE PERFECT WORLD PLANT The objective in Challenge 1 is to manage the plant resources to achieve maximum profit as would be the case in the real world. The big difference between this business and the real world is that it is a ‘prefect world plant’. In this simulated business: supplies are always on time; workers are never absent; customers never change their mind; operators are well-trained and disciplined; resources never break down; quality is perfect; data is always available and always accurate. The plant only has ten resources, two products and three raw materials. You have a complete overview, you control all the policies. You make all the decisions. In this perfect world plant none of the commonly listed problems given as the reasons for managing a plant being difficult exist. Yet in many cases those undertaking the challenge find it quite difficult and the result achieved is not that good. The table here lists the commonly stated reasons for why production is difficult to manage. Compare them to your list; they are probably surprisingly similar. Table 5: A Typical List Of The Problems That Make Managing Production Difficult

Vendors are late with materials

Machines break down

Workers are absent from work

Quality is poor

Customers change their minds

Work must be re-done

Operators are poorly trained and undisciplined

Data is unavailable or inaccurate

Managing the plant in Challenge 1 should have been a piece of cake but for most players it is not. It is common to make a loss and have a large amount of unneeded inventory in the plant at the end of the week. It is common for players to feel frustrated at the end of the week with their own performance. It is also not uncommon given modern managerial belief that high inventory is bad for there to be no inventory left in the plant at the end of the week (is this good or bad?) A ‘better managed’ Challenge 1 will achieve results similar to those in the table below.

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A GOAL GAME

This is an excerpt from out book.... Please visit our web site or obtain a full copy from your local book store, Amazon or the publishers. TOC Executive Challenge: A Goal Game, an educational simulator by John Tripp.

Copyright © 2007 John Tripp ISBN: 0-88427-176-5

All rights reserved. No part of this book may be reproduced or utilised in any form or by any means, electronic or mechanical, including photocopying, recording, or any information storage retrieval system, without permission in writing from the publisher.

The North River Press Publishing Corporation P. O. Box 567 Great Barrington, MA 01230 (800) 486-2665 (413) 528-0034 www.northriverpress.com There is now a new game on line for instant download that enables you to test the simulator supplied with this book before purchasing the whole book. Click here to go to the downloadable game.

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