Theory of Constraints Handbook - James Cox Iii [273]
Metric 3: Speed/Velocity
The objective of this metric is to encourage areas to pass work on as quickly as possible. The time frame in which a system can respond is often a key factor in winning business and effectively managing capital requirements. The iconic basketball coach John Wooden often told his players, “Be quick, but don’t hurry.” Localities must be encouraged to perform work with maximum speed and minimal or no sacrifices to reliability, stability, and quality. If accomplished, it means that the buffer positions that these localities feed can be reduced or the system can be more responsive to potential demand. This metric often takes the form of something called cycle time. Cycle time measures the time that released material spends within an area rather than the standard machine or labor process time. By measuring cycle time, a locality is encouraged to enforce the roadrunner rules,10 encourage movement in time rather than batch, limit WIP inventory, limit early releases, and practice good BM. Conventional metrics like Lead Time, Cycle Time, and Stock/Inventory turns can also be used to reinforce this objective.
Metric 4: Strategic Contribution
The objective of this metric is to encourage areas to maximize the Throughput rate and Throughput volume according to the relevant factors of the environment and system. As mentioned previously, the relevant factors have everything to do with the defined constraints or leverage points. Key specific measures of Strategic Contribution will include measuring against a targeted Throughput rate as well as total Throughput. This metric is designed to encourage all areas to be proactive about participating in the generation of the company’s opportunities (e.g., innovative ways to in-source or outsource based on market conditions as well as adding free products) or find ways to increase the Throughput rate (e.g., product or tooling innovation) by creating a feedback loop to measure how well we executed against our plan to exploit the constraint. This is simply variance analysis with a TOC twist and has four components: constraint rate variance (time), product mix, volume variance, and Throughput dollar variance.
The Throughput dollar variance is the budgeted selling price minus budgeted variable costs for a product family compared to the actual selling price and actual variable costs for the product family at the budgeted constraint volume.
The product mix volume variance is the budgeted volume of the product family versus the actual volume of the product family sold at the standard Throughput dollar rate for the product family.
The constraint rate variance is the standard constraint rate (planned time on the constraint) for the product family versus the actual constraint time spent on the product at budgeted Throughput dollars (selling price minus variable costs per product).
Variance analysis is not proactive; it is a forensic look at the past so we can understand how we used our constraint and judge our exploitation performance.
Remember, the constraint is the primary area where we are measuring utilization and is discussed under “Metric 2: Stability.” While exploitation/utilization of the constraint begins in scheduling, its execution is ensured through BM by identifying effective actions on the shop floor. Having visual loading graphs that clearly show unused/overloaded capacity at the constraint is a proactive tool. The objective is to take actions to sell or make the decision to store the capacity in strategic stock buffers, offload if necessary, or have sales make the call on prioritizing the constraints, workload and communicating changes with the customer.
Metric 5: Local Operating Expense
The objective of this measure is to encourage areas to maximize the local metrics with a minimal or controlled spend. It essentially seeks to measure the amount of money that an area spends in order to convert raw material into Throughput.