Theory of Constraints Handbook - James Cox Iii [562]
The operations, logistics, and customer service departments should not be bottlenecks and these departments should be planned and run with a proper amount of protective capacity (Ronen and Pass, 2008a, Chapter 14). Protective capacity is a controlled excess capacity aimed at protecting the undisturbed flow of service transactions through the organization.
A diagram that is useful for illustrating this permanent bottleneck reality is called Cost-Utilization (CUT) diagram (Ronen and Spector, 1992). The CUT diagram is a histogram that schematically compares the utilization (load) of each resource of the organization with its cost. Each bar in the histogram represents a single resource or department; the height of the bar corresponds to its load (0 to 100 percent), while its width is proportional to its cost.
Focusing management on the permanent bottlenecks has an immense potential of substantially enhancing the performance and value of the organization. Improved performance of Sales and Marketing will bring more customers, whereas improved performance of the IT development department will allow offering better service to customers.
Exploiting Permanent Bottlenecks
Since the service organization always has permanent bottlenecks at the Marketing and Sales department as well as at the IT department, these bottlenecks should be properly managed in order to secure their best exploitation.
Exploitation of the bottleneck has two dimensions:
1. Efficiency—reducing nonproductive times of the bottleneck
2. Effectiveness—directing the bottleneck to process the most valuable services, tasks, and customers.
Increasing Bottleneck Efficiency
Although the value of the service organization is highly dependent on the outcome of its bottlenecks, the percentage of the time that bottlenecks are productive is much lower than 100 percent—usually in the range of 40 to 80 percent (Ronen and Pass, 2008a, Chapter 17). The nonproductive time is called garbage time. Garbage time of a bottleneck is the time devoted to activities that either nobody should be doing or surely should be done by another (non-bottleneck) resource. The garbage time is caused by activities such as rework due to an incomplete kit of requirements or instructions, and participation in unnecessary meetings.
Reduction of the garbage time is achieved by a simple procedure: monitoring the wasted times, classifying them according to their causes, using the Pareto analysis to identify the main causes, and implementing remedies that eliminate or greatly reduce the main causes of wasted time (Ronen and Pass, 2008a, Chapter 5).
The typical result of such a procedure is a 20 to 40 percent increase in the bottleneck’s Throughput. Namely, by conducting an easy-to-implement procedure one can get potentially 20 to 40 percent more salespersons or more software developers without any investment in expensive salaries or training.
Increasing Bottleneck Effectiveness
By definition, bottlenecks are resources that are not able to perform all tasks arriving at their desk. Instead of letting chance dictate which tasks will be carried out and which will be abandoned, it is much wiser to choose to accomplish those tasks that will bring most value to the service organization and abandon the least valuable tasks. The systematic process of picking the most valuable tasks for execution is called strategic gating (Pass and Ronen, 2003). Strategic gating is a process of prioritization that defines the value of the different tasks, products, services, projects, or customers for the organization and