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and thus their relative rate in comparison to each other is simply the calculated Throughput margin (Selling Price – Direct Variable Costs) per unit of product. Notice this “new” company in Fig. 14-5 has a much lower break-even point and is less at risk in a downturn as well as in the best position to capitalize on a market upturn. This happens because constraint productivity is improved by product selection of the highest Throughput per constraint unit in defining product mix, resulting in an upward thrust in the total mix revenue as seen in the steeper slope of the total mix revenue line in Fig. 14-5.

Of course, these rates can be a moving target as prevailing prices and the costs of material and components can change, which in turn can change the Throughput per unit of product. This requires the use of a pricing indifference model. A pricing indifference model is a tool to show at what point companies become indifferent to which product the limited capacity will be dedicated to producing, for example, product A versus product B as relevant factors for each change. Relevant factors include any significant changes to Throughput rates or capacities. Many companies use a targeted aggregate Throughput rate in the annual budgetary process and judge progress and action around maintaining or exceeding that rate.6

These exploitation techniques provide a simple and level playing field (in replacement of traditional product cost and margin) to assess products against each other on the rate at which they generate cash, the selling price that different products need to capture, and the proper mix to seek in the market for the newly exposed capacity derived from constraint exploitation and free product emphasis. This global performance metric, ROI, helps focus management on the fundamental factors that influence the company’s goal and strategy and significantly reduces the number of management dilemmas.

Local Metrics

Once again, metrics need to encourage the right behavior. When dealing with an organization of size and complexity, it always seems to be a challenge to construct a system of local metrics that:

Encourages the local parts to do what is in the interest of the global objective.

Provides relatively clear conflict resolution between and within the local parts.

Provides clear and visible signals to management about local progress and status relative to the organizational objectives.

A relatively simple set of six general measurements for localities is given. It is important to note that these local metrics assume that a valid TOC model has been implemented.

1. Reliability

2. Stability

3. Speed/Velocity

4. Strategic Contribution

5. Local OE

6. Local Improvement/Waste

Depending on the organization and the functional responsibilities of each organization, these metrics will be translated to very specific forms. Due to space limitations, our examples of specific metrics will be oriented toward Operations only.

Metric 1: Reliability

The objective of this metric is to measure execution compliance to a plan or schedule. When localities (resources, work centers, processes, departments, etc.) and systems are less reliable, it requires systems to hold excessive buffer positions (time, stock, or capacity). Time,7 stock,8 and capacity9 are all interchangeable investments in production capacity. All three are simply stored time. Conversely, when localities can reliably perform within planned time horizons, it reduces the amount of buffer required. This reliability is pivotal to moving global metrics in the right direction. In TOC, reliability metrics are easily implemented by tracking service levels. There are obvious types of service level metrics that are important. Conventional metrics like on-time delivery and fill rates are still very important and relevant. In TOC, however, other critical service level metrics must be installed and tracked. These metrics are performance to time and stock buffers. Remember that resources feed buffers. If those resources are more reliable, it often