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earlier commitment date versus the scheduler who doesn’t want to disrupt the schedule; the controller who wants to outsource versus the plant manager who wants to keep the business in-house; the CFO who wants to slash inventories versus the vice president of sales who wants to maintain or even increase inventory; and the engineering manager who wants to standardize products versus the sales manager who wants to sell customized solutions. These dilemmas often represent a constantly changing and frustrating series of daily, weekly, quarterly, and annual set of unsatisfactory compromises. These compromises can cost the organizations tremendous amounts of money as people and resources are whipsawed between two often extreme positions.

What is behind these dilemmas? Commonly these “extreme positions” represent the most apparent or obvious way to meet a particular metric. In our examples, it is purchase price variance versus material availability; overtime budget versus on-time performance; booked business versus schedule stability; product cost versus volume (which can connect back to product cost); cash versus availability/fill rates; utilization versus new business development.

Are the metrics always in conflict? Of course not but often they are. In most for-profit companies, the goal takes some form of return on investment (ROI) or return o average capital employed (RACE). The strategy to accomplish this goal almost always includes tactical objectives (Fig. 14-1) to:

1. Decrease inventory

2. Improve quality

3. Increase sales

Copyright © 2010 by Debra Smith and Jeff Herman.

FIGURE 14-1 Tactical objectives to increase ROI.

4. Decrease cost

5. Improve due date performance (DDP)

Management assumes that improving these five tactical objectives will drive ROI in the right direction. Their assumption is absoltuely valid. The problem is that often the metrics and corresponding actions to achieve these seemingly straightforward tactical objectives will, and do, constantly come into conflict with each other.

Often when a company grows to a relatively modest size, it becomes necessary to segment the organization into areas of functional responsibility (i.e., Sales, Manufacturing, Finance, etc). Therefore it is logical that the tactical objectives are assigned to the functional managers to focus on and improve. However, can a drive to increase quality drive costs up and increase cycle time? Can a drive to decrease costs negatively impact quality and our marketplace? Can a drive to increase sales erode margins? Can a drive to increase on-time delivery or shorten our lead time, increase costs and inventory and erode quality? Can programs to decrease inventory starve the plant and result in decreased on-time delivery and increased overtime costs as well as increased cycle time and work-in-progress (WIP)? In reality the answer to these questions is, “YES!” Each local manager, measured on improving his or her functional responsibility, will drive the organization directly into conflict with itself. This, by definition, is extremely wasteful and limits the organization from having any type of dramatic improvement.

Is there no solution? For years, companies that have embraced the Theory of Constraints (TOC) have proven that there is indeed a solution. When properly aligned in a TOC system, moving all of the objectives in the right direction simultaneously and without conflict is achievable. Figure 14-2 shows the results of a review of the literature by Mabin and Balderstone (2000) of 82 TOC case studies from around the globe. This review showed that companies that implemented TOC were able to move these tactical objectives simultaneously in the right direction.

Do We Measure Too Much?

Once again, are metrics always in conflict? No, but often they are and when they are not in conflict the assumptions around how to achieve certain metrics can put people in conflict. One conclusion we can draw from this is that the more metrics an organization has, the more potential there is for those metrics or the assumptions